South African interest rates expectations in January and the rest of 2025
The Monetary Policy Committee (MPC) will meet at the end of January, and many South Africans hope to hear them announce another interest rate cut.
South Africans have been under significant pressure since the Reserve Bank embarked on its hiking cycle in 2021.
Before this, the Reserve Bank cut rates to record lows to aid struggling households during the Covid-19 pandemic.
However, in 2021, inflation started to trend upward, leading the SARB to enter a hiking cycle in November 2021.
Therefore, while many families were still feeling the effects of the lockdown, they also had to battle higher interest rates, inflation, and a higher cost of living.
This state of affairs continued well into 2024, with the MPC hiking rates by a cumulative 475 basis points. This saw the repo and prime lending rates reach 15-year highs of 8.25% and 11.75%, respectively.
High interest rates placed significant pressure on South African households, especially homeowners who suddenly paid significantly more on their monthly home loan repayments.
However, the last rate increase in the SARB’s hiking cycle was announced in May 2024.
The MPC opted to keep the rate stable for months after that, despite calls from citizens and experts to cut rates and provide relief for struggling households.
In September last year, the SARB heeded these calls and, faced with significantly lower inflation within its target range, opted to cut rates for the first time in years.
The MPC announced a 25 basis point cut in September 2024 and another 25-point cut at its last meeting in November.
Experts widely believe the cutting cycle will continue into 2025, with another cut expected at the MPC’s January meeting.
However, several experts have warned that this cutting cycle will be far shorter and more shallow than many may have hoped.
Daily Investor asked experts for their interest rate projections in 2025, specifically for the MPC’s January meeting.
They were largely in agreement that the SARB is set to cut rates this month but warned that the MPC will likely remain hawkish throughout the year.
Below is an overview of what some of South Africa’s top financial experts expect from interest rates this year.
Frederick Mitchell – Aluma Capital chief economist
Aluma Capital’s Frederick Mitchell expects inflation to remain within the target band of the SARB’s range of 3% to 6%, with inflation increasing slightly in the latter stages of 2025.
“We have seen a hawkish MPC, even with low inflation rate numbers in October and November of 2024,” he said.
“We expect very much the same going forward in 2025, with interest rates only lowering by 25 basis points at a time when the MPC meet, and inflation expectations turn out to hold in coming months.”
He said interest rates will likely be lowered by 100 basis points in 2025, spread out over four MPC meetings in the year.
Mitchell expects these cuts to kick off in January with another 25-basis point reduction.
This projection is based on the MPC’s actions in the last couple of meetings, given lower inflation numbers.
“The Reserve Bank remain hawkish on inflation numbers and lowering of the interest rate coupled with that,” he said.
He added that the stability of the rand and international oil prices both also play a crucial role in inflation numbers in South Africa.
This is because the country remains very much affected and vulnerable to sudden exchange rate fluctuations and oil price movements on the international market, which may influence inflation rate expectations at any given moment.
Albert Botha – Ashburton Investments head of fixed income
Ashburton Investments’ Albert Botha said market expectations for interest rate cuts are cooling in South Africa and the US.
“While a 25-basis-point cut is still anticipated for the SARB’s January meeting, the outlook for further reductions is less aggressive than previously thought,” he said.
“Analysts now predict South African rates will likely bottom out closer to 7.5% rather than 7% by year-end, mirroring a similar trend in US rate expectations.”
“This shift suggests a more cautious approach to monetary easing as both central banks navigate economic uncertainties.”
At January’s Federal Reserve meeting, the market expects a continuation of the current interest rate policy.
Despite earlier speculation of potential easing, analysts now anticipate the Fed will maintain rates at their current level.
“This stance reflects ongoing inflation concerns and a cautious approach to economic uncertainties,” he said.
“The Fed’s decision-making is further complicated by the recent political transition, with the new administration’s fiscal policies yet to unfold fully.”
Mike van der Westhuizen – Citadel Investment Services portfolio manager
Citadel’s Mike van der Westhuizen warned that there is a lot of uncertainty coming into 2025, particularly as it pertains to US policy under President Trump after his 20 January inauguration.
He said inflation has more recently been well below the midpoint of the SARB’s target, which gives the bank room to cut rates.
He expects to see two to three cuts this year as a base case, with a good chance that they will come early in the year, as soon as the first quarter.
“This would take short-term interest rates closer to the SARB’s assessment of the neutral rate,” he said.
“We will likely have more clarity on the path once US policy becomes clearer.”
Until then, Van der Westhuizen said there is a high likelihood of a 25 basis point cut at the MPC’s January meeting.
Dr Elna Moolman – Standard Bank head of South Africa macroeconomic research
Standard Bank’s Dr Elna Moolman said there is arguably scope for the SARB to cut interest rates further, although the forecast risk is quite high.
She explained that the SARB would likely be cautious amid the weaker rand exchange rate that could be inflationary if it persists, although the trade-weighted rand has not weakened nearly as much as the rand-dollar exchange rate.
In addition, she said that, depending on whether this persists, rand weakness should have a limited impact on the inflation trajectory.
She added that domestic inflation pressure has thus far remained quite tame, and the SARB will likely ultimately cut the repo rate to its estimated neutral level, which is the level at which it doesn’t constrain or boost the economy.
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