Interest rate cut on the cards for South Africa

South Africa could see another interest rate cut later in 2025 as the Reserve Bank is expected to mirror moves from the United States Federal Reserve.

Given expectations of lower economic growth in the United States, the Federal Reserve is expected to cut interest rates later this year.

Another interest rate cut in South Africa would be widely positive for local households, giving them the impetus to spend more and, therefore, boost the country’s economic growth.

This is feedback from Nedbank chief economist Nicky Weimar, who recently spoke at the 2025 Nedgroup Investments Treasurers’ Conference.

Weimar explained that while markets are pricing in another interest rate cut in the United States later this year, this outlook is not certain.

However, she said that what is certain is that the United States’ GDP growth will slow, largely due to policy uncertainty and other effects caused by US President Donald Trump’s recent policy changes.

Specifically, Weimar highlighted the impact of the Trump administration’s most recent tariff policies and immigration reforms.

She said both policies are expected to significantly impact the United States’ economic growth and inflation.

Weimar noted that tariffs are not inherently inflationary, but rather affect the relative price levels of goods.

She explained that, for tariffs to become truly inflationary, they need to be accommodated into the system. “Then it develops a life of its own and starts to rise dramatically,” she said.

In other words, if the higher prices from tariffs spread into different parts of the economy, like if wages go up, or businesses raise all prices to protect their margins, then inflation can take hold.

In addition, Weimar noted that the Trump administration’s tough stance on immigration could also have an inflationary and negative growth impact.

While Trump’s policies have focused more on tackling illegal immigration, this has resulted in legal immigration into the United States declining.

She said legal immigration is down 75% so far in 2025, going from around 2.5 million immigrants in 2024 to only 600,000 in 2025.

This will have a significant impact on inflation, in particular, as it will tighten the US labour supply and cause companies to raise wages in response.

Based on these risks to the United States’ inflation outlook, Weimar said it would not make sense for the Federal Reserve to cut rates.

However, markets expect these policies to also significantly impact the United States’ growth prospects for 2025, more so than inflation.

Historically, the United States has responded to lower growth by cutting interest rates, rather than weathering the storm of slower economic growth.

Therefore, an interest rate cut has been priced in for the United States later this year, likely in September, with South Africa’s Reserve Bank expected to follow this trend. 

Good news for South Africa

Weimar said another rate cut for South Africa could be just what local consumers need to ease the cost-of-living pressures they are currently under. This will, in turn, be positive for the country’s economic growth in 2025.

She emphasised how important consumer spending is to South Africa’s economic growth, as producers are under too much pressure from both local and global constraints to make as meaningful a difference.

So far, consumer spending has been strong in South Africa, with households proving to be a reliable source of economic growth for the country.

Weimar explained that South African consumers want to spend, and do so, but needs more help to do so consistently, which could come from easing inflation and lower interest rates.

Inflation has been very low in 2025 so far, and while accelerating food inflation poses some risks, this impact is expected to be subdued by falling global oil prices.

The inflation outlook is also made more uncertain by a potential change in South Africa’s inflation target, which could lead to some short-term pain through higher interest rates.

However, Weimar believes inflation is under control for now and will remain so going forward. 

Another “dark horse” element to this outlook is the performance of the rand, but the currency has been remarkably resilient in 2025 to date.

Along with further expected weakness of the United States dollar, the rand is projected to keep this resilience going as the year progresses.

Therefore, with lower inflation and a resilient rand in play, Weimar said an interest rate cut could be just what consumers need to further fuel their spending and boost South Africa’s economic growth in 2025.