Interest rate warning for South Africa

Global central bankers are poised to cut borrowing costs further in 2025, but only warily — and with a keen eye on the policies of incoming US President Donald Trump.

While almost all major economies should see monetary easing during the coming year, the pace is likely to slow. 

Bloomberg Economics projects its aggregate measure of advanced-world interest rates to drop just 72 basis points in 2025, less than it did in 2024.

The shifts in that gauge tell a tale both of easing cycles that have already progressed, of lingering caution about inflation pressures that might yet need to fully dissipate, and of the unknowns posed by the impending second era of Trump.

The next US president is a haunting presence for central bankers around the world. If enacted, his threatened trade tariffs could hurt economic growth, and stoke consumer prices too in the event of retaliation. 

In the US itself, the Federal Reserve has already switched its attention to the danger of resurgent inflation, curbing the prospect of much easing for now.

Other major counterparts, from the eurozone to the UK, are poised to keep lowering borrowing costs to aid economic growth, but with no sign of a hurry.

Out of 23 central banks focused on in this quarterly guide, just two may end the year with higher rates. Japan’s hiking cycle is likely to continue, while Brazilian officials remain set on action to contain fiscally driven inflation.

“For central banks on the path to policy normalization, the last mile won’t be smooth,” said Tom Orlik, Blomberg’s global chief economist.

“Uneven progress toward 2% inflation, shocks from the incoming Trump administration, and uncertainty about neutral rates all add to the potential for surprise.”

“Bloomberg Economics sees the average advanced-economy central bank rate headed from 3.6% at the end of 2024 to 2.9% at the of end 2025. Sometimes even short distances are hard to travel.”

South African Reserve Bank

Inflation has remained below the mid-point of the South African Reserve Bank’s 3%-6% target range since August, giving policymakers scope to continue lowering borrowing costs in 2025. 

The bank has eased rates by a cumulative 50 basis points since September, after holding the benchmark rate at 8.25% for more than a year.

Governor Lesetja Kganyago acknowledges that pricing pressures have eased, but warns that Trump’s election may create upside risks. 

The SARB will take decisions on a meeting-by-meeting basis and won’t pre-commit to any specific rate path, he says. The central bank’s modelling shows the key rate stabilizing at slightly higher than 7% by the end of 2025. Inflation is seen averaging 4% in 2025.

“Lower-than-anticipated inflation gives the South African Reserve Bank room to cut rates by 50 basis points to 7.25% by March, close to the neutral rate. It will then pause,” said Bloomberg Economist Yvonne Mhango.

“The narrowing of the output gap to zero over the central bank’s forecast period through 2027 supports halting cuts soon.”

“In 1Q25, inflation may be sticky in the lower band of the SARB’s 3%-6% target. It may then rise to the 4.5% mid-point by 4Q25 and stay there through 2026.”

• Current repo average rate: 7.75%
• Bloomberg Economics forecast for the end of 2025: 7.25%

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