Banking

Absa sends interest rate warning to South Africa

Luke Fraser

 ·10 Mar 2026

Absa has warned that South Africa’s interest rate-cutting cycle could halt following the conflict in the Middle East, but does not think interest rate hikes will follow.

This comes despite early signals from traders that are pricing in a possible interest rate hike in South Africa this year.

In its latest financial results for 2025, Absa stated that the global economic environment remains very difficult to predict, as US economic and diplomatic policy is expected to remain volatile.

This comes amid armed conflicts in Ukraine and Iran, with the latter leading to a renewed surge in oil prices.

Absa warned that higher global energy prices would likely see the global GDP growth average 3.2% over the year, with the space for central banks to reduce policy rates likely to shrink.

In South Africa, the group’s forecasts, made ahead of the US and Israel’s attacks in Iran, saw GDP growth of 1.9%, inflation averaging in the low 3% range, and 50 basis points of interest rate cuts in 2026.

These interest rate cuts would have brought the repo rate to 6.25% and continued the interest rate-cutting cycle initiated by the South African Reserve Bank’s Monetary Policy Committee (MPC) in November 2024.

Absa said that this would have led to a recovery in household balance sheets, a more robust employment market, and an improvement in consumer and business confidence.

However, a long conflict in the Middle East could undo this, leading to higher energy prices and a waning global risk appetite.

In South Africa, this would lead to a weaker rand, higher inflation, a more cautious approach to interest rates and weaker economic growth.

“We see the bar for the MPC to reverse course on rates as quite high and think it is very unlikely that the global environment would trigger the onset of a rate hiking cycle,” said Absa.

For Absa’s Africa regions, the events also pose similar risks to its baseline economic forecasts, where its African regions were expected to see growth of 5.3% in 2026.

“The risk to the Africa regions view is for inflation to be higher, for more modest policy rate moves in impacted countries, and more pressure on fiscal sustainability should energy subsidies return,” it said.

Financials

Absa is seeing stronger headline earnings growth in its other African regions despite the improvements in South Africa.

Absa said the global economy entered 2025 on an uncertain footing. Nevertheless, global growth for the year is still set to hit 3%.

In South Africa, data suggests that the economic performance was relatively strong, with four straight quarters of growth by Q3 2025.

Absa said the improved South African performance followed the positive impacts of structural reforms, strong commodity prices, and lower interest rates.

Business and consumer confidence, however, remained weak over the year, likely impacted by tensions in the GNU and with the US. The expectation is for 1.4% GDP growth in 2025.

Economic growth was mixed across Absa’s African markets in 2025. Ghana and Zambia showed strength, while Botswana and Mozambique were hurt by weak diamond markets and safety concerns, respectively.

While African markets saw mixed growth, the region is still expected to grow by 4.9% on a GDP-weighted basis, which is far higher than in South Africa.

The group’s overall headline earnings grew 12% to R24,762 million. The group’s ordinary dividend per share rose 12% to 1,635 cents, resulting in a payout ratio of 55%.

Notably, South Africa’s headline earnings increased by 7% to R16,996 million, while the African regions grew 25% to R7,766 million.

While the African regions contributed only 31% of both group revenue and earnings, their higher headline earnings growth suggests South Africa’s peers are getting a bigger bang for their buck.

Several local banks have been trying to expand into Africa in search of higher growth, such as Nedbank, which acquired NCBA in Kenya in a deal worth R13.9 billion.

Looking ahead, Absa has reiterated its medium-term targets, which include an RoE target range of 16% to 19% for the period 2027 to 2030

The group expects its credit loss ratio to improve slightly, into the bottom half of our 75bps to 100bps through-the-cycle target range.