What to expect for interest rates in South Africa for the rest of the year
Experts have noted that South Africa will likely see no more interest rate cuts for the rest of the year as inflation remains a concern.
Stats SA’s latest data showed consumer price inflation rising to 3.5% in July, up from 3% in June.
While this is still well within the Reserve Bank’s target range of 3% to 6%, the trend is upwards. The increase came mainly from food and utilities, with sharp price hikes in meat and vegetables.
Municipal tariffs also played a big role. Water charges rose by 12.1% this year compared to 7.5% last year, while electricity went up by 10.6%.
Refuse collection and sewage removal were added to the inflation basket this year, and both rose by more than 6%. Without these increases, inflation would have been just 3.1%.
Adrian Pask, Chief Investment Officer at PSG Wealth, said that although inflation is still low, the upward direction makes it harder for the Reserve Bank to cut rates.
Pooja Tanna from Perpetua Investment Managers agreed that the Reserve Bank is likely to keep rates unchanged.
“Inflation printed at 3.5%, but you need to remember it was in line with expectations. We could see that food inflation had spiked,” she said.
She added that much of the pressure came from government-controlled prices, like electricity, water, and rates. Despite this, Tanna does not expect inflation to rise sharply.
“I see the ceiling sort of between 3.8% and 3.9% into year-end. I don’t think it reaches 4% by the end of the year. We’re already seeing the easing of price pressures in food inflation,” she said.
For that reason, she expects the Reserve Bank to sit tight. “I think you get a pause in September and you get a pause in November again,” she said.
Although no interest rate cut is not good news, Tanna also does not believe interest rate hikes are likely. “I don’t think they’ll be talking about interest rate hikes. I think the pause is definitely there,” she said.
Still a small chance for a cut
But some economists believe there may still be a chance of a rate cut if the United States Federal Reserve lowers its own rates again this year.
Global financial markets are betting on this after Fed chair Jerome Powell signalled that more cuts are likely.
Investec chief economist Annabel Bishop said markets had worried that higher US tariffs would push inflation higher and delay cuts, but Powell’s comments gave some reassurance.
“Markets now expect two more cuts this year in US interest rates, with a high probability of a third,” she said.
This expectation has already weakened the dollar and strengthened the rand, because lower US rates make South Africa’s higher-yielding bonds more attractive to investors.
Nedbank’s chief economist, Nicky Weimar, explained that if the Fed cuts rates, South Africa could follow.
“Inflation in the country is largely under control, despite a higher reading in July, and, combined with the rand’s recent strength, could give the Reserve Bank room to cut,” she said.
Weimar stressed that a cut would help households under pressure from rising living costs. Consumer spending has been surprisingly strong this year and has been a key driver of economic growth.
“South African consumers want to spend, and do so, but need more help to do so consistently, which could come from easing inflation and lower interest rates,” she explained.
She added that this is especially important because local producers are struggling. Global growth is slowing, and higher US tariffs on South African exports are adding to the strain.
At home, producers face high costs from electricity and logistics, making it hard to compete internationally.
This means households, not companies, are doing much of the work to keep the economy moving. For that reason, an interest rate cut later this year could provide a welcome boost.
Despite this, the most likely outcome for now is that the Reserve Bank will hold rates steady. Inflation is edging higher, and the SARB has made it clear that keeping inflation close to 3% is its priority.
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