Another shift for interest rate expectations in South Africa
Bank of America’s latest fund manager survey shows that investors are nearly certain South Africa is still on an interest rate-cutting cycle, but they are less confident that the Reserve Bank will cut again in 2025.
According to the survey’s findings, 88% of fund managers expect the next policy move by the SARB’s Monetary Policy Committee to be a cut.
However, only 50% expect this to happen at the MPC’s final meeting in November, a shift down from the almost two-thirds that expected as much in the September survey.
While timing remains a coin flip, investors see two 25 basis point cuts still coming in the cycle, with the repo rate expected to be 6.50% within the 12 months.
However, current projections are for this to play out by Q2 2026—a marked difference from the previous projection of the cycle running through to Q4 2026.
The October survey also revealed a notable shift in market sentiment, with 81% of fund managers bullish on local equities and a clear rotation from resources to domestic sectors such as retailers, food producers, and banks.
The findings point to renewed confidence in South Africa’s economic outlook and easing inflation expectations, the group said.
However, there is still a strong degree of caution.
Lining up with recent reviews from rating agencies, fund managers also stressed that South Africa needs to see “true reform and growth” for an economic turnaround.
More fund managers see inflation ticking higher, and fewer managers see higher growth for the country, pointing to shifts on both from the last survey.
Stats SA is expected to publish September inflation data this week, with economists expecting no real changes from last month. Inflation is forecast at 3.5% y/y for the month.
Forecasts for growth, meanwhile, have ticked slightly higher, with the IMF most recently lifting its projections to 1.1% for 2025.
The MPC will consider both factors, alongside the South African Reserve Bank’s longer-term goal to move its inflation targeting to 3.0%.
Other interest rate expectations
Looking at broader interest rate expectations, there is a general consensus that South Africa will still cut rates in the coming 12 months.
According to Investec chief economist Annabel Bishop, a 25bp cut in the repo rate before the close of 2025 is almost fully factored in by financial markets, including the SARB’s own forward rate curve.
However, most economists are not expecting any more cuts in 2025, with the next policy move anticipated in the first quarter of 2026.
Bloomberg Economics’ Yvonne Mhango noted that “the SARB looks set to stay on hold to defend its stricter 3% inflation goal, down from the old 4.5% focus.”
Momentum chief economist Sanisha Packirisamy also does not see another interest rate cut in 2025, but is more optimistic about cuts in the new year.
Market views are for another 50 basis points to be cut by the end of 2026, with some outlier projections pointing to a higher 75 basis points being cut.
Over the past year, the MPC has cut a total of 125 basis points off the interest rate. The last meeting was a hold, with a 4-2 vote in favour of that position.
Notably, the two counter votes were in favour of a 25 basis point hike, showing there is interest in cutting.
Market analysts who favour a cut sooner rather than later—including Bishop and fund managers polled by Bank of America—cite overly restrictive monetary policy.
Bishop described domestic interest rates as “highly restrictive”.
While holding rates would benefit the rand as the US Fed starts a more aggressive cutting cycle (boosting the rate differential), it comes at a time when local demand is weak and inflation is in the process of moving structurally lower, she said.
Fund managers generally agree, with over two-thirds (69%) surveyed by Bank of America saying the country’s policy rates are too restrictive.
The MPC will meet and announce its final policy decision for the year on 20 November 2025.
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