What to expect for interest rates in South Africa in 2025

The South African Reserve Bank’s (SARB’s) decision to cut interest rates by 25 basis points this week came as no surprise, with many economists predicting the more cautious approach from the Monetary Policy Committee.

However, where the cutting cycle will go next is still up for debate.

According to economists at Nedbank, despite the current favourable trend in domestic inflation, the risks to the outlook have increased slightly since the SARB’s September meeting.

This was reflected in the MPC’s statement, where, unlike September, a 50 basis point cut wasn’t even up for discussion.

The economists said that the central bank is clearly looking at the path ahead with the more recent changes to the global political landscape in mind, and is opting to tread carefully, rather than make any bold moves.

“The rand will likely face bouts of pressure amid the anticipated changes in US economic policies. In addition, the ongoing geopolitical conflicts still pose upside risks to oil prices, but these will likely be countered by muted global demand.

“Further upside pressure could emanate from elevated electricity and administered prices. While inflation will likely drift higher, it will remain anchored around 4.5% over the next three years,” Nedbank said.

The Bureau for Economic Research (BER) also flagged that the SARB will “likely continue to tread carefully going forward”, with many of the factors causing uncertainty unlikely to disappear over the near term.

Given this backdrop and the lingering uncertainties, the economists anticipate the easing cycle to carry another 75 basis points of cuts in 2025, taking the repo rate to 7.00% and the prime lending rate to 10.50%.

This is broadly in line with the SARB’s own forward projection model, which sees rates terminating “just above” 7%.

While the forecast sees rates easing further in future, stabilising above 7%, this implies room for another 50 basis points of cuts.

Bloomberg Africa economist Yvonne Mhango expects one more 25 bp cut in January 2025, “which will take interest rates to 7.5% – close to the neutral rate.”

“The narrowing of the output gap to zero over the central bank’s forecast period supports ending the rate-cutting cycle in the near term,” she said.

Other economists, speaking to Bloomberg, have forecast 25 basis point cuts at every meeting through to mid-2025 – equating to 75 basis points cut in total.

The slower path to the end of the cycle – and the sooner end to the cycle itself – has been described as “highly restrictive”, particularly given how much inflation has eased.

However, the SARB has denied chasing a lower inflation target, reiterating that its approach is one of caution amid uncertainty.

Read: How much you’ll save on your bond after the latest interest rate cut in South Africa