Bad news about interest rates in South Africa
Bank of America analysts are pricing in only one interest rate cut for South Africa in 2025, with a 25 basis points reduction coming in January and no more for the rest of the year.
This was revealed during a media roundtable outlining the Bank of America’s outlook for the South African economy in 2025.
Sub-Saharan Africa Economist for Bank of America Global Research, Tatonga Rusike, explained that the Reserve Bank will largely take its cue from the US Federal Reserve.
As the inflation picture worsens in the US and the country’s economy goes from strength to strength, the room for the Federal Reserve to cut rates has disappeared.
Thus, Bank of America does not expect the Federal Reserve to cut rates in 2025 following Donald Trump’s ascension to the White House.
Potential tax cuts from the Trump administration are set to boost the American economy and probably result in it overheating.
US GDP growth has been strong for the past two years, with cash being pumped into the local economy through government spending.
Tax cuts are set to free up close to $400 billion in additional capital for companies, further flooding the economy with cash.
Coupled with a strong labour market and increased uncertainty, Rusike said Bank of America’s research shows that the Federal Reserve will have no room to cut rates in 2025 and may even have to increase interest rates in the US.
This will significantly impact the Reserve Bank as it has to keep its eye on the Fed, given the outsized impact the US has on financial markets.
If the Reserve Bank cuts more quickly than the Fed, it risks weakening the rand and reigniting local inflation as it will make US fixed-income assets more attractive on a relative basis.
Furthermore, if the Fed does not cut interest rates, global uncertainty will spike as investors have priced in multiple reductions in US rates.
This will, in turn, result in the Reserve Bank being more cautious in cutting rates as that will threaten to introduce further volatility into local financial markets.

Rusike also explained that Bank of America expects the rand to weaken in the first half of 2025 and increased geopolitical tension to weigh on emerging market currencies.
He said that after the Reserve Bank’s interest rate cut at the end of January, the picture is likely to change significantly.
As global risks come to the fore, pushing investors to the dollar and the rand weakens, inflation will pick up in South Africa.
As the South African economy is relatively small and extremely open, anything that impacts global capital flows and trade has a large impact on the country.
Furthermore, the country imports the vast majority of its oil and other key commodities, making it highly susceptible to imported inflation.
If Bank of America is correct and the rand weakens, the price of imports will increase and thus push inflation higher in South Africa.
Rusike expects inflation in the country to rise above the 4.5% midpoint of the Reserve Bank’s target range, forcing to delay rate cuts.
However, he was clear in saying that Bank of America sees no reason for the Reserve Bank to hike rates in 2025.
Local markets strategist for Europe, the Middle East, and Africa at Bank of America, Mikhail Liluashvili, said the reduction in anticipated rate cuts in South Africa can clearly be seen in trading data.
Traders have gradually scaled back their bets for South Africa’s interest rate cuts this year, with markets now pricing in only one as the rand weakened since the US election in November.
The weaker rand has already led to higher petrol prices and will impact the Reserve Bank’s ability to keep inflation below its 4.5% midpoint this year.
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