Bad news for South Africans looking for another interest rate cut

Experts widely believe South Africa will not see another interest rate cut until the middle of the year, as concerns about rising inflation remain.

Investec chief economist Annabel Bishop said South Africa’s interest rate outlook continues to contain further expected cuts this year.

Specifically, Bishop expects two more 25-basis-point cuts this year, not including the cut that was announced in January.

These cuts came after the South African Reserve Bank (SARB) had been in a hiking cycle since November 2021.

Between November 2021 and May 2023, the Monetary Policy Committee (MPC) implemented 475 basis points of hikes.

This saw interest rates in the country shoot to 15-year highs, with the repo rate peaking at 8.25% and the prime lending rate at 11.75%.

Interest rates remained unchanged until September 2024, when the MPC announced the first interest rate cut in years.

Since then, the committee has cut rates twice more, once in November 2024 and again in January 2025.

While these cuts have brought relief to consumers, interest rates have only dropped by a cumulative 75 basis points, far less than the 475 basis points they have risen by in the past three years.

Concerningly, many experts and the market do not expect any further cuts anytime soon.

In contrast to economic forecasters, the financial markets are not expecting further repo rate cuts this year, as shown in the Forward Rate Agreement (FRA) curve.

However, Bishop said the FRA curve is volatile and tends to be a poor longer-term predictor of rate moves.

The Bloomberg consensus in January sees another 25 basis point interest rate cut in March but expects rates to remain unchanged for the rest of the year.

Therefore, the published Bloomberg consensus forecasts the repo rate at 7.25% by the end of the first quarter of 2025, with the repo rate currently at 7.50% after January’s cut. 

Bishop pointed out that the committee members did not unanimously decide on the outcome of January’s MPC meeting.

Two members voted against the decision to ease by 25 basis points and, instead, these two votes supported no change in the repo rate.

Bishop said this indicates that the SARB’s next interest rate decision in March could be to leave the repo rate unchanged.

She said the latest MPC statement also supports a pause in South Africa’s interest rate-cutting cycle. 

In its January statement, the MPC noted the risks to the inflation outlook are assessed to the upside.”

“In the near term, inflation appears well contained. However, the medium-term outlook is more uncertain than usual, with material risks from the external environment,” SARB Governor Lesetja Kganyago said. 

“Domestic factors such as administered prices are also problematic.”

“The forecast sees rates drifting slightly lower over the next few years, stabilising near 7.25%. But this rate path from the Quarterly Projection Model remains a broad policy guide.”

Bishop explained that the inflation targeting process depends on forward-looking readings in its six-to-twenty-four-month target period, mainly 2026 and 2027.

Currently, forecasts show inflation averaging near 4.5%, signalling further rate cuts.

The SARB’s latest MPC forecast report shows that the CPI is expected to be 4.6% in 2026 and 4.5% in 2027.

For 2025, CPI is expected to average 4.1% in the third quarter and 4.6% in the fourth, on the back of at least one more 25 basis point cut. 

“We believe the MPC will pause, and the next cut in the interest rate cycle will be around mid-year, either at May or July’s MPC meeting,” Bishop said. 

Investec’s forecast currently shows the next cut at 25 basis points in July, followed by another in November.