Good news for interest rates in South Africa could come sooner than expected

Economists from the Bank of America (BofA) say that South Africans may see interest rate relief in May and July 2025, pencilling in two cuts in a row.

The group concluded a three-day visit to South Africa, and now sees two interest rate cuts for the country this year, coming sooner than many other local analysts predict.

The bank sees the South African Reserve Bank’s Monetary Policy Committee taking advantage of more settled global markets and cutting interest rates in the May meeting and again in the July meeting.

This differs greatly from other economists who see one more cut this year, likely later, either in September or December.

BofA said that the policy rate is likely to be 7% by the end of July, citing benign inflation, low oil prices and a weakening US dollar.

“The risk when it comes to rate cuts is skewed to more, rather than less,” it said.

“Inflation is benign and likely to remain so. We are forecasting low oil ($65 per barrel) and an appreciating ZAR given a weakening USD. Headline CPI is likely to average 3.6%.”

BofA said that, through various engagements with SARB MPC members in Washington and South Africa over the past few weeks, the impression is that the central bank remains cautious.

Overarching concerns are global risks and domestic fiscal and Government of National Unity risks that could increase the country’s risk premium.

“Since the March MPC, global uncertainty has somewhat reduced through tariff de-escalation. We now know tariffs are likely to be smaller than announced on April 2. We are a month into the 90-day pause on tariffs while the US negotiates trade deals,” the economists said.

In addition, the direct impact on South Africa of US tariffs is likely to be small, they said.

The US accounts for about 7.7% of South Africa’s total exports, dominated by precious metals, motor vehicles, iron and steel, chemical products, and mineral products.

“With the exemption of minerals, only a small share of auto and agriculture exports is exposed,” they said.

However, South Africa still remains at risk, following rifts with the US related to geopolitical conflicts and local economic empowerment laws.

“Nevertheless, slower US and China growth will drag global growth down, along with South Africa.”

Looking at local risks, the group noted that there is much less talk of a GNU breakdown, with the focus now being on the remaining tensions.

Markets are showing this through credit spreaks, but the bank said that it is more likely that the GNU will hold.

Economists still expect a hold in May

While BofA has switched to expecting a rate cut in May, the general consensus among other economists is that the MPC will vote to hold.

Expectations for South Africa’s cutting cycle have shifted dramatically since the start of the year.

2025 started out with expectations of a continued cutting path through to May—another 50bps in total—however, this was paused with a vote to hold rates in March.

This followed a seismic shift in global politics as US President Donald Trump signed a flurry of executive orders after taking office in late January.

After the launch of the so-called “liberation day” tariffs in April, most scratched out any hope for an interest cut at all in 2025, as global uncertainty flooded markets.

However, this position has now been walked back, with the US Fed in particular signalling more cuts this year—with local expectations for the SARB following suit.

Economists now expect one or two cuts for South Africa, between 25bps and 50bps total, pencilled in for the end of the year, making BofA an outlier.

Bank of America acknowledged that the SARB could hold in May, but said that this would be based on the overall risk profile tied to the coming Budget.

If the third go at the budget goes awry—either through negative policies or more infighting—this could increase the GNU risks and a sell-off of South African assets.

This would put the SARB on edge and lead to a cautious hold.

“Conversely, a neutral budget with a GNU majority vote would lead to a positive market reaction, lower yields, a stronger ZAR, and tighter credit spreads. That would clear the way for a SARB cut,” the bank said.

With the latest shift, this is now seen as back on the cards for 2025, either at the July, September or November meeting.