What to expect from interest rates in South Africa next week
The Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) is widely expected to cut interest rates when it meets next week on Thursday, 19 September.
The MPC has raised interest rates by a massive 475 basis points (bps) since 2021 after extreme inflationary pressures hit the South African economy following the Covid-19 pandemic. This took the repo rate to a 15-year high of 8.25%.
Inflation figures rose following Russia’s invasion of Ukraine, load shedding, global supply chain issues and the weak rand/dollar exchange rate.
However, inflation has trended downwards recently, dropping from 5.1% in July to 4.6% in July – only 0.1% above the SARB’s target. Core inflation was even lower in July.
Although the SARB would stress that the July figure would not influence its interest rate decisions based on future expectations, its forecasts show that inflation could hit 4.3% in 2024.
The Bureau for Economic Research stressed that its recent inflation expectations survey, which the MPC uses in its decisions, showed that inflation is expected to average 5.1% in 2024 and then 4.8% in 2025 and 2026—above the SARB’s target.
Nevertheless, the BER predicts that August’s next consumer inflation print will probably reach 4.5% when it is released next week.
In addition, the rand strengthened significantly in recent months, dropping from around R19/$ before the national election in May to a sustained level below R18/$.
The US Federal Reserve, which announces its decision one day before the MPC on 18 September, is also widely expected to cut rates. This would allow the SARB to cut rates without impacting the interest rate differential between the nations.
“The latest consumer inflation print showed a further easing in price pressures. This, coupled with last week’s labour data showing a slowdown, has led to markets pricing in as a certainty that the Fed will cut next week for the first time since 2020,” said the BER.
“Consensus is for a 25bps reduction after a slight acceleration in shelter inflation put to bed speculation that the Fed would cut interest rates by 50bps. Indeed, before the CPI release, markets were pricing in a 30% chance that the Fed could cut by 50bps; this declined to 13% after.”
What experts think
Analysts were also buoyed by the most recent MPC meeting in July, where two of the six members voted to cut rates by 25bps.
After this, Bank of America brought forward its expectations of the first 25bps rate cut from January 2025 to September 2024, followed by another cut of 25bps
After revising its inflation outlook downward due to the strengthening of the rand exchange rate and the easing of domestic political uncertainty, FNB also said it expects an earlier interest rate cutting cycle. The “Big Four” bank expects 25bps cuts in both September and November.
The BER said that it also expects the SARB to cut rates by 25bps in September.
“There is a risk that the SARB could decide to frontload cuts and reduce the repo rate by 50bps, but this seems a less likely scenario,” said the BER.
Investec Chief Economist Annabel Bishop also said that 25bps will cut the repo rate at next week’s MPC meeting. She believes this will offer debt servicing cost relief as the cycle persists over 2025 and 2026.
“2025 will also benefit from the interest rate cutting cycle underway over the course of next year and from the two—to three-quarter lagged effects (and up to two years) of interest rate cuts beginning in September this year,” said Bishop.
The MPC expectations of
| Experts | September MPC | November MPC |
| Nedbank | 25 bps | 25 bps |
| Standard Bank | 25 bps | 25 bps |
| Bank of America | 25 bps | 25 bps |
| Investec | 25 bps | 0 bps |
| Bureau of Economic Research | 25 bps | 25 bps |
| FNB | 25 bps | 25 bps |
More Relief in 2025
Although analysts have different measures and consider varying timeframes, many believe that further relief will occur in 2025.
Nedbank’s economists believe there will be 75bps worth of cuts in 2025.
Investec 2025 prediction sees 100bps worth of cuts but doesn’t see a cut occurring in November.
Nedbank and Investec’s expectations would see the repo rate going to 7.0% by the end of 2025.
Bank of America sees 50bps worth of cuts in the first half of 2025, while FNB expects a 25bps cut early next year. Standard Bank also sees two cuts in the first half of 2025.
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