South African interest rate expectations from top economists

Following an interest rate cut in January, economists are optimistic that the South African Reserve Bank (SARB) will continue with further reductions in 2025.

The cut in January was the third in the cycle started by the Monetary Policy Committee (MPC) of the SARB. The three cuts of 25 basis points have resulted in a repo rate of 7.50%.

The cuts mark a period of relief for consumers and businesses after prolonged high inflation rates led to an increase in interest rates, which reached a 15-year high of 8.25% in 2023.

The increases in interest rates followed a period of low borrowing costs when the central bank cut rates substantially at the start of the decade to increase economic activity amid Covid-19.

However, the end of the pandemic was greeted by a rapid rise in prices amidst heightened load shedding and Russia’s invasion of Ukraine, which increased fuel prices.

The effects of load-shedding and higher fuel prices would start to affect grocery prices in the country, requiring retailers to use fuel-powered generators to keep their produce cool.

Amid the higher interest rates, which decrease borrowing and spending, and a 300-day suspension of load-shedding, inflation dropped dramatically in 2024.

The December 2024 inflation data showed a rate of 3.0%, which was at the bottom end of the South African Reserve Bank’s (SARB’s) target range of 3% to 6% and well below the midpoint target of 4.5%.

Despite the low inflation levels, the latest rate cut decision was close. Four members voted for the cut, while two voted for rates to remain unchanged.

This comes amidst fears of inflation due to global developments, especially the widespread use of tariffs by the United States government.

At the latest MPC decision, SARB Governor Lesetja Kganyago said that inflation should remain below the 4.5% target for the first half of the year before reverting as core inflation remains at its normal target.

That said, risks to the SARB’s target remain on the upside. Using a model that saw a universal 10% increase in US tariffs, with retaliation by other countries, inflation could hit 5.0%.

The scenario would also result in higher inflation and interest rates globally and greater risk aversion in financial markets. The SARB’s model would also see the rand depreciate to R21 to the US dollar.

Despite concerns over a global trade war, South African economists remain confident about future rate cuts.

Annabel Bishop – 50 basis points

Investec’s Chief Economist Annabel Bishop believes that the SARB will cut interest rates again twice this year, but South Africans may have to wait for this price relief.

Investec believes that the MPC will pause the next cut in the interest rate cycle until around mid-year. The first 25 basis point cut is expected for July, followed by another in November.

Bishop added that the MPC statement supports a pause in South Africa’s interest rate-cutting cycle, noting that risks are assessed to the upside following the three recent cuts.

Since its last meeting, the MPC has seemed concerned about the outlook for monetary policy in the United States, which looks far flatter than previously predicted amid the US’s tariff increases.

With South Africa’s interest rates often following the movements of the US Federal Reserve, a pause in South Africa’s rate-cutting cycle for the rest of the first half of 2025 seems likely.

With two more 25 basis point cuts in 2025, the repo rate would be reduced to 7.0%, broadly in line with the neutral rate.

Dawie Roodt – 25 basis points

Efficient Group chief economist Dawie Roodt is less optimistic than Bishop and expects the Reserve Bank to further cut interest rates by only 25 basis points in 2025.

However, Roodt said that that may not happen if US President Donald Trump imposes measures against South Africa, such as sanctions.

This comes amidst heightened tensions between South Africa and the United States over the recently signed Expropriation Bill.

Trump signed executive orders stopping aid to South Africa and another allowing Afrikaaners to come to America as refugees.

Despite the risks of Trump and other unforeseen developments, Roodt said that inflation and, more importantly, inflation expectations seem well anchored.

Roodt also added that he hopes Finance Minister Enoch Godongwana will reduce inflation targets. Although the SARB tries to hit the inflation target, the National Treasury sets it.

He said that although this will mean a slower rate deduction trajectory, it will eventually lead to a deeper cycle.

Goolam Ballim – 25 basis points

Standard Bank’s Chief Economist Goolam Ballim expects one more rate cut in South Africa in 2025, which will occur at the March MPC meeting.

South Africa’s largest bank by assets has considered the SARB’s fears over US tariffs, looking at the 10% universal tariff increase.

It also highlighted how Kganyago flagged the possibility that global central banks may not only have to pause cutting but could also start increasing rates.

However, the global risks to inflation could be countered by South Africa’s own “disinflationary impulses.”

This includes Stats SA changing its inflation basket for 2025, which should result in 0.1-0.2ppt lower inflation this year.

Although forecast risk has increased dramatically recently, Standard Bank still believes there is room for another 25 basis point cut in March, which would be the fourth straight cut.

Johann Els – 50 basis points

Old Mutual’s chief economist Johann Els also remains confident of two more 25 basis point interest rate cuts in 2025.

Els believes that CPI inflation will total 3.8% this year, remaining below 4.0% in the first half of the year and 4.5% in the second half of the year.

Els said that relatively low inflation levels should allow the SARB space to cut interest rates by another cumulative 50 basis points.

He added that the current inflation trajectory should negate some of the negatives coming off of US policy and the remaining dollar strength.

Koketso Mano – 50 basis points

FNB senior economist Koketso Mano believes that there is still space for the MPC to cut rates further this year.

She said that local headline inflation is expected to remain anchored over the medium term, with interest rates remaining restrictive, keeping demand-driven inflation contained.

“The primary risk to the near-term outlook is slower monetary policy easing by the United States Federal Reserve Bank and heightened risk aversion, which would weigh on the dollar-rand exchange rate.”

“FNB currently predicts cuts worth 50 basis points, which would bring the repo rate to 7% by the end of 2025. At that stage, monetary policy would have a more neutral impact on economic activity,” said Mano.