Big shift for interest rate expectations in South Africa
Economists are starting to shift their expectations to an interest rate cut this month, after previously pencilling in a hold through to March 2026.
Markets are widely expecting South Africa’s interest rate cutting cycle to continue this year, with most forecasts projecting at least another 50 basis points of cuts in 2026, followed by another 25 basis points in 2027.
However, while economists agree cuts are coming, the timing is in question.
Following the South African Reserve Bank’s 25-basis-point cut at its final meeting in November 2025, most commentators believed the central bank’s next move would be to pause and assess the impact of the cuts made that year.
This would have put a hold on the calendar for the SARB’s January meeting, a cut in March, another hold in May, and a final cut in July for 2026.
According to Aluma Capital Chief Economist Frederick Mitchell, there is now a growing case for interest rate cuts to occur sooner, starting in January.
“The dynamics surrounding this decision have shifted significantly since the last MPC meeting in late November 2025, driven by a confluence of international events and local economic performance,” he said.
At the heart of the shift is the remarkable appreciation of the South African rand, which has strengthened from approximately R17.25 against the US dollar to around R16.40.
“This movement can largely be attributed to a weaker US dollar, influenced by the recent reduction in interest rates by the Federal Reserve,” Mitchell said.
The global economic environment has been marred by increased uncertainties, notably following the US raid on Venezuela, leading investors to seek refuge in traditional safe-haven assets such as gold.
However, it’s not just the rand strength tilting in favour of rate cuts.
The price of gold—critical to South Africa’s economy—has surged from $2,800 per ounce in early 2025 to record highs over $4,400 in January 2026.
This escalation not only reflects the market’s reaction to heightened geopolitical tensions but also underscores gold’s pivotal role in bolstering South Africa’s foreign exchange reserves.
“With mining remaining a cornerstone of the South African economy, this surge positively impacts local economic prospects,” the economist said.
Inflation looks under control
Rounding out the positive shift in expectations for an interest rate cut this month, inflation numbers are also looking positive.
The latest figure, for November 2025, showed headline inflation at 3.5%. While this slightly exceeds the SARB’s new target of 3.0%, it remains within the one-percentage-point margin.
Inflation is expected to remain steady at 3.5% in the December reading, which will be released later this month.
Mitchell added that inflationary pressure has largely been mitigated by the strength of the rand and declining international oil prices, meaning pricing is likely to remain anchored, presenting a favourable environment for a possible rate cut.
“The interplay of these factors creates a compelling narrative for the SARB,” he said.
“In a context where no immediate inflation risks are evident—from both the domestic and foreign economic climates—lowering the repo rate could enhance economic growth without igniting inflationary pressures.”
The previous cut by the Reserve Bank was unanimous. However, the SARB has historically been more hawkish and prone to erring on the side of caution.
This was evident by the protracted period during which it kept South Africa’s rates in restrictive territory.
Mitchell noted that, while the potential rate cut presents an opportunity, it also requires careful consideration of both domestic and international developments—something the SARB will be mindful of.
“The SARB must remain vigilant to any signs of emerging inflationary pressures, particularly as global economic conditions continue to evolve,” he said.
The SARB convenes for its Monetary Policy Committee meeting on 29 January.
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