What to expect for interest rates in South Africa next week

The South African Reserve Bank (SARB) Monetary Policy Committee (MPC) will be meeting next week to decide on its next move on interest rates, with economists divided between a hold and a cut.

While most experts anticipate the central bank to remain cautious and vote to hold rates at current levels, they also agree that it won’t be a unanimous vote.

A growing minority believe that the bank will realise that there is room to cut rates further—especially given the latest inflation data—and could deliver a small cut.

According to the Bureau for Economic Research (BER), there are three ways to approach the vote: what the Reserve Bank could do, what it should do and what it will do.

The answers are not necessarily the same.

“When thinking about SARB decisions in recent months, we have started to talk about what the SARB is likely to do,” it said.

“While a strong case can be made for further easing, we believe the SARB may again err on the side of caution and keep its rate unchanged.”

The BER said the SARB should have probably started the year with more aggressive cuts, but that is only understood in hindsight.

The central bank has froze rates at its March meeting as global markets were disrupted by the second term of US President Donald Trump.

This ultimately proved to be somewhat warranted as Trump’s tariff war kicked off just days later, sending shockwaves in almost all economies.

However, the chaos started settling soon after, and now weeks later, some semblance of calm has returned. This is also largely thanks to Trump pausing the most egregious tariffs for 90 days.

The BER noted that the Reserve Bank of Australia cut rates for a second time this year, to a two-year low, despite warning about heightened global uncertainty.

Other central banks have also cut rates. Since 2 April, 15 central banks, including the Bank of England, the European Central Bank, the Bank of Mexico, and the People’s Bank of China, have cut interest rates.

“There is a chance the SARB agrees with respect to South Africa. Indeed, forward rate agreements are pricing in a 25bps rate cut for next week,” the BER said.

Local economists are generally anticipating a hold on rates in May with a possible cut in July, as the outcome of Trump’s 90-day tariff pause plays out.

International economists expect a cutting path closer to global counterparts, with cuts starting sooner rather than later.

A big spanner in the works

A critical factor in determining South Africa’s path forward with interest rate cuts is whether or not the Reserve Bank’s inflation target will change.

SARB governor Lesetja Kganyago has long called for a lower single-point inflation target of about 3%, which would put South Africa on the same footing as many of its global peers.

Deputy Finance Minister David Masondo recently confirmed that the department was in talks with the Reserve Bank about lowering the target—like to between 3% and 5%—with an announcement coming soon.

There was no announcement of a lower inflation target in the budget tables this week, as discussions between Treasury and the Reserve Bank are still ongoing.

However, more information could be forthcoming next week at the MPC briefing.

Regardless, economists and market experts have noted that lowering the target range will likely lead to a much longer hold on interest rates, possibly scratching any moves for the rest of 2025.

According to Bianca Botes, director at Citadel Global, a lower target would likely benefit the economy on the whole, but South Africans would see lower and slower salary growth on top of lower prices.

In addition, interest rate decisions will come much slower, and the SARB will be much more considered in its approach.

“While a stricter target might suggest tighter monetary policy to keep inflation low, current analysis suggests that the SARB may not necessarily raise interest rates aggressively,” she said Botes.

“Instead, the central bank might adopt a more cautious stance on rate hikes and cuts, focusing on maintaining inflation within the new, narrower target.

“This could mean more gradual adjustments in interest rates, aiming to balance inflation control with economic growth and employment objectives.”

The big red flag that’s attached to a lower target, though, is that it requires careful calibration to avoid unintended consequences, such as restricting infrastructure investment or economic activity.

“The flexibility inherent in the current target range allows for temporary deviations, which might be constrained under a tighter target regime,” said Botes.