Good news for homeowners in South Africa next week

 ·24 Jan 2025

South African homeowners can look forward to another 25 basis point cut to interest rates next week, with economists agreeing that the flat inflation levels and stable outlook should be enough for the Reserve Bank to make the cut.

The South African Reserve Bank Monetary Policy Committee (MPC) will meet next week, with the rate decision scheduled for Thursday, 30 January 2025.

According to economists at Nedbank, the inflation figures published on Wednesday, at 3.0%, came in below market expectations, ending up ‘benign’, and keeping inflation below the SARB’s target.

“With inflation well below the SARB’s 4.5% target and expected to remain relatively subdued, we believe there is room for further monetary policy easing,” the group said.

It noted that a 25 basis point cut is the most likely move, given that some upside risks are creeping up on the market.

This includes a slightly higher inflation trajectory in 2025—although still likely to remain in the range of the SARB’s 4.5% target—as well as some global uncertainties that might put pressure on the rand and risk appetite in the market.

Other risks include the Donald Trump presidency in the US, which has already put the US Fed on the back foot. Economists are pencilling in fewer cuts state-side, and a much longer and slower landing.

Mitigating some of these risks for South Africa, however, is the fact that local rate cuts are already trailing the United States, where the US Fed has reduced interest rates by 100bp in the cutting cycle, versus South Africa’s 50bp since September 2024.

“This creates space for one more rate cut later this year without placing the rand under too much pressure,” Nedbank said.

“Consequently, we expect another rate cut in March, taking the repo and prime lending rates to 7.25% and 10.75%, respectively. This aligns with the November estimates of the SARB’s Quarterly Projection Model, which also pointed to reductions of about 50 bps in 2025.”

At this level, interest rates will still be 50 bps higher than just before the Covid 19 pandemic struck.

The Bureau for Economic Research (BER) echoed this assessment, also noting the “persistent upside risks and uncertainty” present in the market, which could make the SARB hesitant to cut rates any further.

However, the expectation is that there will at least be another 25 basis point cut next week, with opportunity for another cut after. But South African’s should be cautious expecting any more.

“For now, we think a further 25bps cut after January is possible, but we are less convinced of this than before and think a further 25bps cut (i.e. a third cut this year) is unlikely as the SARB seems to place significant emphasis on the upside risks to inflation,” the BER said.

Investec chief economist Annabel Bishop noted that South Africa’s Forward Rate Agreement curve has only priced in around one 25bp cut in the repo rate this quarter (end March 2025), and has priced in little further.

Overall expectations are for a definite 25 basis point cut next week, and one more 25bp cut sometime during the rest of the year.

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