Bad news for interest rates in South Africa following latest MPC decision

South Africa’s central bank paused its easing cycle while it assessed the impact that US President Donald Trump’s trade policies may have on inflation. 

Governor Lesetja Kganyago told reporters at a briefing north of Johannesburg on Thursday (20 March) that the monetary policy committee maintained the benchmark interest rate at 7.5%.

That matched the median estimate of 21 economists in a Bloomberg survey, in which 14 predicted the hold and the rest expected a cut. 

The decision comes after three straight 25 basis point reductions that began in September and follows a pause by the Federal Reserve overnight.

Four of the six members of the monetary policy committee favoured keeping rates on hold.

“The world economy is experiencing extreme levels of uncertainty. Trade tensions have escalated, and longstanding geopolitical relationships are shifting abruptly.

In these circumstances, the global economic outlook is unpredictable,” Kganyago said. “Globally, we do not know where policy will end up.”

The rand declined 0.4% against the dollar, while the two-year bond yield fell three basis points to 8.23% by 16h08 in Johannesburg. The benchmark stock index extended its decline.

South Africa’s annual inflation held steady at 3.2% in February, beating analysts’ forecasts for it to accelerate to 3.4%. That bolstered the argument for a rate cut — but it has been countered by a marked escalation in Trump’s rhetoric and tariff measures.

The American president also halted aid to South Africa over land laws he claims are unjust toward White South African farmers, among other complaints, and his administration last week expelled the country’s ambassador to Washington over disparaging remarks he made about the president.

South Africa hasn’t confiscated any private land since the end of apartheid in 1994.

“While we had expected a cut today, we had also anticipated that risks would be finely balanced. It was not a high conviction call,” said Razia Khan, chief economist for Africa and the Middle East at Standard Chartered Plc.

“At the end of the day, the global risks are real — and the SARB’s caution is justified. It does not close the door to one more cut, but further easing would need to be justified by the emergence of more benign global scenarios.”

The central bank sees inflation averaging 3.6% this year, down from its previous forecast of 3.9% and 4.5% next year, marginally lower than what it previously predicted.

It aims to anchor inflation expectations at the midpoint of its 3% to 6% target range. 

“We have seen the benefit of inflation moderating,” said Fundi Tshazibana, one of the bank’s deputy governors.

“We’re very clear that we see upside risk over the near term, which is what the current inflation print was signalling.”

The bank sees the economy growing 1.7% in 2025, and 1.8% next year. Under the most severe scenario, it is considered that the souring of relations with the US could shave 0.7 percentage points off the growth rate.

Its forecasting model, which serves as a guide, shows the benchmark rate at 7.25% at the end of this year and 7.21% at the end of 2026. 

“If you are a small, open economy, global developments impact how your own economic outlook evolves,” Kganyago said. “It is rather incorrect to say that you have given more weight to global factors than to domestic factors.”