The South African Reserve Bank (SARB) Monetary Policy Committee (MPC) will hold its first meeting for the year later this month. The central bank’s next interest rate decision is expected on 30 January 2025.<\/p>\n\n\n\n
With consumer inflation easing more than expected in the latter months of 2024, now sitting below the SARB’s 3%-6% target range, economists are confident that interest rates in the country will continue to drop.<\/p>\n\n\n\n
However, consumers hoping for big cuts coming in fast may be disappointed, as the outcome of the US presidential election in November 2024 has thrown a spanner in the works.<\/p>\n\n\n\n
Market uncertainty around another Donald Trump presidency has brought the US rate-cutting cycle to a crawl\u2014which could impact rate cuts back home, stretching out an already slow cycle.<\/p>\n\n\n\n
South Africa saw a total 50 basis points (bps) cut to rates in 2024, with a 25bp cut in September and another 25bp cut in November.<\/p>\n\n\n\n
Currently, projections are for another 75 bp to be cut from rates in 2025\u2014but the timing is now expected to be drawn out.<\/p>\n\n\n\n
Modelling by banking group Investec shows that the most likely scenario will see Q1 2025 ending with the repo rate at 7.50%, implying a 25bp cut at either the January or March MPC meeting, with January seen as the most likely.<\/p>\n\n\n\n
No cuts are expected in the second quarter of the year, and another 25bp cut is expected in the third and fourth quarters.<\/p>\n\n\n\n
In the base case, this would put the repo rate at 7.00% by year-end, in line with the Reserve Bank’s own projections of seeing the rate settle around that level.<\/p>\n\n\n\n
However, if things take a turn for the worse in 2025\u2014such as inflation shooting higher and other local or global ills hitting the economy and the rand\u2014rates could even go in the other direction.<\/p>\n\n\n\n
January projections<\/strong><\/p>\n\n\n\n Looking ahead to the coming MPC meeting on 30 January, market analysts are cautiously optimistic that another 25bp cut is lined up – but warn that nothing is guaranteed.<\/p>\n\n\n\n Adrian Goslett, Regional Director and CEO of RE\/MAX of Southern Africa, noted that the MPC has repeatedly taken a cautious approach in its meetings. While many had hoped for larger and more timely rate cuts, the outcomes have “repeatedly fallen short of expectations.”<\/p>\n\n\n\n But given the weakening of the rand and the volatility of global oil prices\u2014which will invariably impact local fuel prices and, ultimately, inflation\u2014more rate cuts cannot be taken as a given.<\/p>\n\n\n\n The rand has been under pressure since the start of the year, hitting January at R18.78\/$, after reaching R17.60\/$ in December.<\/p>\n\n\n\n The local unit weekend even further this week, reaching 19.23\/$ on Monday.<\/p>\n\n\n\n Investec chief economist Annabel Bishop said the rand was on the back foot in large part due to US data releases and the focus on the incoming Trump administration.<\/p>\n\n\n\n “Market sensitivity remains high, and with recent jobs numbers surprising to the upside, along with readings on economic growth showing a solid performance in the US, markets continue to factor out further US rate cuts this year,” she said.<\/p>\n\n\n\n The implied US Fed funds futures now expect only a 25bp cut in US interest rates by December this year with 100% certainty, having moved back from expecting that the 25bp cut would occur in June this year instead.<\/p>\n\n\n\n As US interest rate cut expectations pull back, and markets start factoring in Trump’s ‘America-first’ policies and the uncertainties his presidency will bring, emerging market currencies like South Africa’s rand have weakened.<\/p>\n\n\n\n Bishop said that the next US Fed meeting is coming on 20 January\u2014a day before the SARB’s MPC announcement\u2014with no interest rate cut expected.<\/p>\n\n\n\n This means the MPC “may choose to put through a further 25bp cut in the (local) repo rate,” Bishop said.<\/p>\n\n\n\n “This could result in further rand weakness as the differential between US interest rates and South African interest rates narrows. <\/p>\n\n\n\n “For this reason, the SARB may choose against further easing in South Africa\u2019s interest rates until the Fed cuts again, limiting bond strength,” she said.<\/p>\n\n\n\n
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