Interest Rate Relief on the Horizon as Market Outlook Brightens in South Africa

The outlook for interest rates in South Africa has taken a positive turn as market stability returns following a turbulent April. With inflation under control and government reforms on track, economists are now forecasting up to 50 basis points of interest rate cuts from the South African Reserve Bank (SARB) by year-end.

Markets were rocked earlier this year by global tariff tensions and local political uncertainty—particularly around South Africa’s national budget and the fragile Government of National Unity (GNU). These issues triggered global sell-offs and investor hesitation. But according to Jan-Daan van Wyk, Associate Director at Stonehage Fleming Investment Management, the panic has settled, and South Africa’s economic fundamentals remain strong.

Van Wyk explained that the real repo rate in South Africa sits at 4.3%—well above the neutral estimate of 2.5%. This gap gives the SARB leeway to respond to economic pressures. After cutting the repo rate to 7.5% in January and holding it steady in March, money markets are now pricing in another 50bps in rate cuts before the end of 2025.

Investec chief economist Annabel Bishop shares this view, predicting two 25bps cuts—one in July and another in November. However, if the US Federal Reserve only delivers two cuts this year, SARB may also proceed more cautiously with a single 25bps adjustment.

While inflation risks persist, particularly from external shocks, the overall picture is one of cautious optimism. Structural reforms under Operation Vulindlela are moving ahead, largely shielded from the political friction within the GNU. This week, President Cyril Ramaphosa launched phase two of the initiative, reinforcing investor confidence.

Despite tensions between the ANC and DA, and the still-pending national budget, market sentiment suggests South Africa’s reform agenda is intact. Infrastructure investment plans remain on course, and private sector capital expenditure is showing promising signs, particularly in mining, manufacturing, and construction.

Van Wyk added that corporate resilience remains solid, South African equities are trading at a discount relative to peers, and inflation appears under control. These conditions support a shift to a more flexible monetary policy in the coming months.

Still, Van Wyk cautioned that global and local economic pressures must stabilize further before market confidence can return fully. “We are not out of the woods yet, but there are plenty of reasons to be prudently optimistic,” he said.

As South Africa navigates its fiscal and political hurdles, the potential for interest rate relief offers a much-needed silver lining for households, businesses, and investors alike.

{Source: BusinessTech}

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