Good news for interest rate cuts in South Africa
While economists are iffy about another interest rate cut in 2025, they are confident that South Africa is still in a cutting cycle with more drops to come.
According to Investec Chief Economist, Annabel Bishop, the South African Reserve Bank has taken a stop-start approach to its cutting cycle, which started in September 2024.
Over the past 12 months, the SARB’s Monetary Policy Committee (MPC) has cut a total of 125 basis points off the rates—aligning with the United States Fed.
Notably, however, the US Fed is expected to cut by a further 50 basis points in 2025, increasing the chances of South Africa doing the same.
But the latter is less certain. While South Africa tends to stick closely to US rate moves, the country is currently moving towards a lower inflation target of 3%.
The path to a new target usually takes around two years to settle in, during which time the MPC will be more sensitive and cautious around policy moves.
“South Africa’s lower inflation target has meant that monetary policy credibility has seen the economic consensus inflation forecast fall substantially,” Bishop said.
“A lower long-term inflation rate, at 3.0% y/y versus 4.5% previously, would bring about a significantly lower interest rate environment for South Africa in the next few years, as the interest rate cutting cycle remains in place.”
Bishop noted that a 25bp cut in the repo rate before the close of 2025 (ie, in the MPC’s final November meeting) is almost fully factored in by financial markets, including the SARB’s own forward rate curve.
However, many economists expect the MPC to continue erring on the side of caution and hold rates until next year.
If the SARB cuts in November, South Africans could see another 50bp of cuts in 2026. If rates are held until 2026, this could bump up to 75bp in cuts by the end of the year.
“In South Africa, demand is weak, and CPI inflation is in the process of moving structurally lower, with a long-term inflation rate of 3.0% y/y anticipated, while domestic interest rates are highly restrictive, heralding further rate cuts next year,” Bishop said.
One of the benefits for South Africa on a hold is that the rand may strengthen against the dollar.
As the US Fed cuts rates, and South Africa holds, the rate differential between the two countries expands. This typically leads to a stronger rand.
Bishop noted that the US is expected to see a further 100bp in interest rate cuts over the forecast period (to 2027).
While this does not signal a stronger rand on its own, it could see the local unit attempt to drive below the R17.00/$ level.
“With the FOMC’s focus on the labour market, and its high willingness to look through any temporary effects of higher, tariff-induced inflation, the US may cut its interest rates by more than the implied Fed funds futures currently show,” Bishop added.
The SARB’s MPC will meet for the final time this year in November, with the next interest rate announcement scheduled for 20 November 2025.
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