What to expect for interest rates in South Africa next week
The South African Reserve Bank (SARB) Monetary Policy Committee (MPC) will be meeting for the last time in 2024 next week, with another rate cut expected to be announced on Thursday (21 November).
Economists are largely in agreement that the MPC will cut rates by another 25 basis points, continuing the slow rate-cutting cycle that started in September.
The likely cut comes thanks to inflation in South Africa undershooting the Reserve Bank’s 4.5% target—although there are growing warnings that upside inflation risks are looming.
According to economists at Nedbank, inflation receded further below the SARB’s target in September, with the headline figure falling to 3.8% after easing to 4.4% in August.
Fuel price cuts exerted the most downward pressure, but food and core inflation also held steady at a relatively low 4.1%.
The downward trend is expected to intensify and broaden in October, amplified by another sharp drop in local fuel prices caused by the virtuous combination of falling global oil prices and a stronger rand, the bank said.
“We expect headline and core inflation to fall to about 3.3% and 4%, respectively, in October. After that, our forecasts suggest that inflation will hover around and below the 4% level for an extended period before drifting higher off a low base to about 4.7% by the end of 2025.”
The bank forecasts to average 4.6% in 2024, 4.3% in 2025, and 4.4% in 2026. Overall, inflation is forecast to remain anchored around the SARB’s target over the next three years, contained by continued global disinflation, subdued commodity prices, a steadier rand and measured domestic demand, it said.
However, the upside risks to inflation have increased since the September MPC meeting, with the biggest risk emanating from the United States and the policies of its president-elect, Donald Trump.
These policies—which centre around “America first”—are already putting the rand under pressure, and if pushed ahead, could deliver significant headwinds to emerging markets and South Africa over the next four years.
Recent global developments threaten to reverse the rand’s pullback since the May elections, which played a significant role in returning domestic inflation to the SARB’s target faster than most expected.
“The proposed policy mix of tax cuts, tariffs and mass deportation will likely be reflationary and potentially raise the floor on US interest rates over the medium term,” Nedbank said.
“The tariff plan also poses significant downside risks to global trade and world growth prospects, with adverse consequences for China’s already struggling economy.”
Given that China is the world’s largest consumer of commodities, the tariff plan could depress commodity prices, weighing export earnings, the terms of trade and, therefore, the currencies of many commodity-exporting developing countries, the bank said.
On the more optimistic side, other developments are more encouraging, Nedbank said, including continued global disinflation, declining international oil prices, and other central banks pushing ahead with monetary policy easing.
In South Africa, there is an improvement of supply-side conditions, and progress in meaningful regulatory reforms related to electricity. While pricing is still an issue, it is likely that Eskom’s massive price hikes under the MYPD6 will be rejected by Nersa and in the public hearings.
“Altogether, we believe that conditions remain supportive of further monetary policy easing,” Nedbank said.
Following an expected 25-bps cut next week, the bank anticipates a further 75-bps reduction in 2025, taking the repo rate down to 7% and the prime lending rate to 10.50% by the end of next year.
“If inflation and interest rates align with our forecasts, the real repo rate will remain above 2% throughout 2025,” it said.
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