Expectations split for interest rate cuts in South Africa
South Africans might still see an interest rate cut in 2025, with the last two months of inflation data splitting views on where the South African Reserve Bank (SARB) will go in November.
Over the last year, the SARB has seen interest rates cut by 125 basis points, with inflation sitting around the bottom of its 3% to 6% target range.
The SARB has said it wants to keep interest rates near the bottom of the target range, and the latest inflation data has done just that.
The two latest inflation figures came out at 3.3% in August and 3.4% in September, which were lower than most expectations.
August data was expected to accelerate to 3.6%, but instead retreated to 3.3%. Baseline expectations for September were 3.5%, but the outcome was lower at 3.4%.
Tatonga Rusike, Bank of America’s (BofA’s) Global Research’s Sub-Saharan Africa Economist, said that the latest number has now opened the door for a 25 basis point cut in November.
This marks a shift from BofA’s previous belief of a hold, with the Reserve Bank now expected by at least some prominent economists to cut interest rates to 6.75%.
On top of this, Rusike noted that at the previous September Monetary Policy Committee (MPC) meeting, two of the six members voted to cut interest rates by 25 basis points.
Although four members voted for a hold, the vote indicated a ready minority was for a rate reduction.
For interest rates to be cut, three votes need to favour a cut, one of which has to be Governor Lesetja Kganyago, who has the tiebreaker vote.
In BofA’s view, the SARB is unlikely to cut interest rates further after a 25 basis point cut in November. If the cut happens in November, it expects the SARB to remain on hold until the second half of 2026.
This would then likely move to two 25 basis point cuts in July and September, taking the policy rate down to 6.25%.
However, other economists disagree, seeing a hold on rates for the rest of 2025, with 50-75bp of cuts spread throughout 2026.
Before the SARB makes its decision, it will still have October’s inflation to digest.
October CPI is expected to trend upwards to 3.9%, BofA said. This comes amid a decline in year-on-year fuel deflation.
The bank also sees an upside risk from medical inflation, especially in the first quarter of 2026, amid higher medical aid scheme prices.
Discovery Health’s increase of 7.2%, Bonitas’ 8.8%, and Momentum’s 9.9% are higher than the Council of Medical Schemes’ guidance.
Downward pressure would come from lower fuel prices, with a potential decline of 2.5% in November, which could ease near-term upside pressure on CPI.
South Africa needs cuts
The decision from the MPC will be important as South Africa is in desperate need of interest rate cuts, according to Prescient Investment Management CIO, Bastian Teichgreeber.
Teichgreeber noted that interest rates in South Africa remain too high, hurting economic growth.
He specifically cited high real interest rates in South Africa, which measures the difference between inflation and interest rates.
South Africa’s real interest rates are currently sitting at around 3.5%.
By compariosn, the real interest rates in the United States are currently at around 1.75%, which could reduce further in the coming months.
Although interest rates only make up one piece of the puzzle for South Africa, their relatively high level are not aiding South Africa’s woeful economy.
South Africa’s growth was less than 1% in 2023 and 2024, and is barely expected to grow above 1% in 2025.
With the population growing at around 1.5% per year, it means South Africa’s GDP per capita is shrinking and the population is getting poorer.
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