Bad news for interest rate cuts in South Africa

The Federal Reserve and global peers appear set to keep cutting interest rates in the remainder of this year, carrying on where much of Europe has left off.

That’s what Bloomberg Economics envisages, with reductions in borrowing costs predicted for 15 major central banks out of the 23 featured in this guide. Apart from the Bank of Japan, which is seen raising rates, the rest are anticipated to stay on hold. 

The latter group is predominantly western European, with policymakers from Frankfurt to London and the Nordics forecast to halt easing cycles for now as policymakers gauge the strength of inflation.

Even in Switzerland, where one final reduction into negative territory is anticipated, that’s predicted to be a short-lived trough. 

Expectations for interest rate movements in the United States and South Africa are outlined in more detail below.

US Federal Reserve

• Current federal funds rate (upper bound): 4.25%
• Bloomberg Economics forecast for end of 2025: 3.75%
• Market pricing: Money markets indicate a quarter-point cut at each of 2025’s two remaining decisions is likely. An additional couple of reductions in 2026 is fully priced as well as some hedging for a third cut. 

The coming quarter is crucial for the Fed on both the policy and political fronts.

On policy, Fed officials voted in September to lower the central bank’s benchmark interest rate, the first cut in 2025, and projected another two cuts this year as they aim to support the labor market while keeping downward pressure on inflation.

Fed officials next gather to decide policy on Oct. 28-29, when markets expect them to lower rates by another quarter point.

On the political front, White House pressure on the Fed to lower rates further is expected to continue. Trump may announce his pick to succeed Chair Jerome Powell, whose term ends in May.

The US Supreme Court’s refusal to allow him to immediately oust Fed Governor Lisa Cook has eased pressure on the central bank, for now.

The order means Cook can remain at her post at least until the justices rule after hearing arguments in the case in January.

South African Reserve Bank

• Current repo average rate: 7%
• Bloomberg Economics forecast for end of 2025: 7%

South Africa’s monetary policymakers are expected to hold rates steady for a second consecutive meeting in November, aiming to anchor inflation at the lower end of their 3%-to-6% target range, where they signaled in July they prefer it to settle.

The central bank’s quarterly projection model sees inflation quickening to 4% in the final quarter before easing to 3% by 2027, and signals scope for at least 75 basis points of rate cuts next year.

Governor Lesetja Kganyago has long maintained that the model remains a broad policy guide and that future decisions “will be will be taken on a meeting-by-meeting basis, with careful attention to the outlook, data outcomes, and the balance of risks to the forecast.” 

“The SARB looks set to stay on hold to defend its stricter 3% inflation goal, down from the old 4.5% focus,” Bloomberg Economics’ Yvonne Mhango said.

“The stance matters as inflation is on track to rise to just under the midpoint of the 3%-6% target range by year end and hold there through 2026. To keep the door open for a return to the lower bound, the bank will likely keep rates at 7.0% through this year and into 2026.”