Huge relief for South Africans coming soon

Economists expect petrol prices to come down again in June, which should keep inflation in check enough to warrant at least two more interest rate cuts this year.

Motorists will see petrol prices cut by 22 cents per litre on Wednesday (7 May), bringing another month of savings following the sizeable 72c/litre cut in April.

The lower petrol prices come courtesy of steep declines in global oil, where spot prices have dropped below $62 a barrel.

According to Investec chief economist, Annabel Bishop, there does not appear to be anything hampering this trend at present, noting that the current levels could potentially lead to another cut in June.

This is aided by the strengthening of the rand versus the dollar, which has recovered to R18.21/USD on Tuesday, and is likely to strengthen further this month.

While the lower fuel price already directly benefits South Africans by delivering savings at the pump, it is also a significant contributor to inflation levels, which are currently well-below the Reserve Bank’s target.

Bishop noted that inflation is currently at its lowest point in the inflation cycle in South Africa, at 2.7% y/y, falling from 7.8% y/y in July 2022 to below the lower end of the SARB’s inflation target range of 3-6% y/y.

The economist attributed the overall moderation in inflation to the drop in fuel prices, along with lower agricultural price pressures.

“The rand saw periods of strength and demand pressures were weak overall,” she said.

Notably, core inflation—which excludes food, non-alcoholic beverages fuel and energy prices—has now dropped to 3.1% y/y in the latest data, from 5.3% y/y two years ago, as the underlying nature of inflation in South Africa is very moderate.

Although inflation is still expected to slowly return to the middle of the SARB’s target range at 4.5% over the next two years, outside of any shocks, this should give the central bank room to cut rates further.

More interest rate cuts for South Africa coming

Echoing other economists’ views of the market, Bishop said that further cuts in the domestic interest rate cycle are now expected in 2025.

However, she believes that two cuts are coming, with a 25 basis point cut in July and another in November, totalling 50bps.

This is on the back of a more supportive environment, globally and locally—and a complete reversal of earlier expectations for interest rate cuts to be paused until 2026.

It follows a shift in the United States, where the US Fed is now also expected to cut rates more rapidly this year, with 75bps of cuts expected in the remainder of 2025.

This in turn should support the rand, Bishop said, aiding further currency strength. The continued moderation in the oil and general commodities price outlook also supports this view.

“Globally, weakness in the US economy, reflected in disinflation, supports the market’s view for at least three interest rate cuts, but the US is not expected to see recession this year, with surveys currently showing only a 40% chance at most,” Bishop said.

However, despite the expected relief in petrol prices and interest rates, South Africa still remains under pressure, with economic growth coming in weaker than earlier forecasts.

Bishop said that concerns around the outlook for global growth have risen as the US-led trade war escalated, with heavy tariffs on China, and the world’s second largest economy reciprocating heavily against the US.

This has fed into many global economies, South Africa included.

While some moderation in the recent international tariff escalation is expected later in the year, if not next year, global and domestic economic growth is still expected to be impacted to a degree, Bishop said.

This is even more so for South Africa, which is slowing growth beyond just the impact of the tariffs.

In the near term, the South African Reserve Bank is expected to hold on rates at its next Monetary Policy Committee meeting in May. The MPC will announce the outcome on 29 May.