Good news about interest rate cuts in South Africa

It is looking increasingly likely that the Reserve Bank will cut South Africa’s interest rates at its next meeting at the end of January.

Another interest rate cut would not only benefit consumers with debt but also make the local economy more resilient in the face of global uncertainty.

This is feedback from Aluma Capital chief economist Frederick Mitchell, who said an interest rate cut in January would be both reasonable and timely.

The Reserve Bank’s Monetary Policy Committee (MPC) is set to meet again on 29 January 2026 to determine the country’s monetary policy.

Mitchell said the prospect of another interest rate cut being announced at this meeting appears increasingly likely.

His view is supported by the notable appreciation of the rand against the US dollar. Since the MPC’s last meeting in November 2025, the rand has strengthened from R17.25/USD to R16.37/USD.

Mitchell said this appreciation can largely be attributed to a weaker US dollar, influenced by the recent reduction in interest rates by the Federal Reserve. 

In addition, he said the global economic environment has been marred by increased uncertainties, notably following the presidential raid on Venezuela.

This has led investors to seek refuge in traditional safe-haven assets such as gold, with the precious metal also having seen its price appreciate significantly over the past year.

The gold price has surged from $2,800 per ounce in early 2025 to $4,400 in January 2026. This has immensely benefited South Africa’s economy, which is still heavily commodity-based.

“This impressive escalation not only reflects the market’s reaction to heightened geopolitical tensions but also underscores gold’s pivotal role in bolstering South Africa’s foreign exchange reserves,” Mitchell said. 

“With mining remaining a cornerstone of the South African economy, this surge positively impacts local economic prospects.”

He added that South Africa’s inflation numbers are also in favour of an interest rate cut, with the latest CPI outcome being November’s 3.5% reading.

Mitchell explained that while this is slightly higher than the Reserve Bank’s new target of 3%, this inflationary pressure has been mitigated by the strength of the rand and declining international oil prices. 

“With oil prices under control and the rand maintaining its strength, inflation expectations in South Africa are likely to remain anchored, presenting a favourable environment for a possible rate cut,” he said.

Keeping an eye on inflation

Mitchell explained that, while an interest rate cut would benefit the economy and South Africans with debt, the Reserve Bank must remain vigilant to any signs of emerging inflationary pressures.

This vigilance has become increasingly important as global economic conditions continue to evolve.

“In an increasingly complex global landscape, this measure could serve to enhance economic stability and growth, reaffirming confidence in South Africa’s economic resilience,” he said. 

“The stage is set for a pivotal decision that could have lasting implications for the South African economy and its citizens.”

However, for the time being, Mitchell said the rand’s recent strength and a softer US dollar form a robust backdrop for managing inflation expectations. 

“In a context where no immediate inflation risks are evident – from both the domestic and foreign economic climates – lowering the repo rate could enhance economic growth without igniting inflationary pressures,” he said.

“This approach would advocate for a cautious reduction in interest rates, aimed at bolstering economic performance while ensuring that inflation remains well-managed.” 

“By lowering the repo rate, the SARB could provide an impetus for increased spending and investment, crucial for sustainable economic growth, particularly in light of the ongoing global uncertainties that South Africa must navigate.”

Another 25 basis point rate cut in January would bring the repo rate down to 6.50% and the prime lending rate to 10%.

It would mark the seventh cut in the current cycle, which started in September 2024 and has delivered 150 basis points of cuts so far.