Good news for interest rates in South Africa – what to expect

Following the 25 basis point cut to interest rates in September, economists anticipate another 125bp in cuts to land by the end of March 2026.

This makes expectations for the coming cutting cycle at least 25bp more than before, thanks to a wave of positive sentiment in both South Africa and in the US.

The next cut is expected at the November 2024 meeting—the Reserve Bank’s final meeting of the year—with another 25bp cut anticipated.

According to Investec chief economist Annabel Bishop, however, the cutting cycle will be extremely gradual, and the group does not anticipate deeper cuts (e.g., 50bp) at any of the coming meetings.

The bank’s modelling shows a total 150bp cut between September 2024 and March 2026, with small snips to rates hitting every other Monterary Policy Committee (MPC) meeting (three out of six) in 2025.

The table below outlines the current projections:

“South Africa’s MPC turned dovish at its last (September) meeting, with the change in tone coming on the back of a sharp drop in inflation, and in its inflation forecasts, as well as the US Fed’s surprise 50bp cut,” Bishop said.

The sharp start to the US interest rate cut, versus the market and economic consensus of 25bp, and the market’s view of at least a further 50bp cut in the Fed fund’s rate this year, lifted expectations for South Africa’s cuts, she said.

As a result, South Africa’s FRA (Forward Rate Agreement) curve has factored in a further 25bp cut this year, at South Africa’s November MPC meeting, steepening the curve from early in September, as the US/SA interest rate differential has widened.

Bishop noted that the quickening in South Africa’s expected rate cut cycle was also aided by the further drop in inflation forecasts, to 4.6% y/y for 2024 (previously 4.9% y/y), 4.0% y/y for 2025 (previously 4.4% y/y) and 4.4% y/y (4.5% y/y) for 2026.

However, as always with forward-looking data, the economist warned that the positive data doesn’t mean that the interest rate-cutting cycle will be rapid or deep.

She said that, on top of moves in the US, South Africa’s interest rate cuts will also depend on incoming local economic data, which can adjust the MPC’s interest rate expectations and impact its interest rate decisions.

South Africa remains highly sensitive to market sentiment.

For example, the rand pulled back from some of its strongest levels in recent memory to hit over R17.65 to the dollar, as markets had a knee-jerk reaction to the US Fed chair’s comments about slowing easing of rates stateside.

This was softened by positive sentiment, locally, about businesses and the government working together to raise South Africa’s GDP growth to 3%.

Because of this volatility, Bishop said that interest rate cuts are unlikely to exceed 25bp during the cycle, reflecting the SARB’s cautious approach.

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