Business
Why 2026 Could Bring Interest Rate Relief for South Africans
A calmer inflation picture is changing the mood
For the first time in a long while, there is a sense of cautious optimism creeping back into South Africa’s economic conversation. After years of rate hikes squeezing household budgets, fresh signals suggest borrowing costs could keep moving lower through 2026.
Economists are increasingly confident that the country remains on a rate-cutting path. Lower inflation and shifting expectations are doing most of the heavy lifting. It is not a sudden turnaround but rather a slow and deliberate easing that reflects how carefully monetary policy is being managed.
What the latest inflation numbers are telling us
The surprise came in November 2025 when inflation eased to 3.5 percent, down from 3.6 percent in October. Many analysts had expected inflation to tick higher. Instead, prices softened.
That single data point mattered more than it may seem. It reinforced the idea that inflation pressures are cooling more sustainably than previously thought. For households and businesses, this signalled that the worst of the interest rate pain might finally be behind them.
Economists pencil in cuts for next year
Economists from Momentum Investments, Sanisha Packirisamy and Tshiamo Masike, believe this cooling trend gives the Reserve Bank room to continue easing rates in 2026.
Their outlook includes two interest rate cuts of 25 basis points each during the year. If that plays out, South Africa’s repo rate would drop to 6.25 percent and the prime lending rate to 9.75 percent. Those levels were last seen in October 2022, before borrowing costs climbed sharply.
It is worth noting that the next Monetary Policy Committee meeting on 29 January 2026 is expected to be a pause rather than a cut. The thinking is that the Bank will want more confirmation that inflation expectations are settling closer to the target before moving again.
Why inflation expectations matter so much
Beyond the headline inflation number, expectations are what really guide policy decisions. The latest survey from the Bureau for Economic Research showed a notable shift.
Inflation expectations for 2026 fell to 3.8 percent, while expectations for 2027 eased to 3.7 percent. One year ahead, two years ahead, and even five-year expectations all moved lower. Analysts, businesses, and trade unions were all aligned in revising their forecasts downwards.
This matters because expectations influence wage negotiations, pricing decisions, and long-term planning. When expectations fall, inflation often follows.
The new 3 percent target changes the game
In November 2025, the Reserve Bank officially adopted a lower inflation target of 3 percent. That shift is already reshaping how policy is communicated and understood.
Lesetja Kganyago has been clear that policy will now be set with the aim of bringing inflation back to 3 percent consistently, not just on average. Occasional breaches of the target band may happen, but only during severe shocks.
The recent drop in inflation expectations suggests that this new target is being taken seriously. Economists say it is starting to feel credible, even if expectations remain above the target for now.
Why January is likely a holding pattern
Despite the positive signals, the Reserve Bank is expected to keep rates unchanged at its January meeting. This is not a sign of hesitation but rather caution.
Monetary policy works with a lag. Decisions made today typically affect prices 12 to 24 months later. Cutting too quickly could undo the progress already made.
The Bank has repeatedly warned against ill-timed cuts, stressing the need to anchor longer-term expectations firmly at 3 percent. Holding steady in January allows policymakers to assess whether recent gains are durable.
What this means for everyday South Africans
For homeowners, car buyers, and small businesses, the prospect of further rate cuts is welcome news. Lower rates ease monthly repayments and create breathing room in household budgets that have been stretched thin.
On social media, many South Africans have reacted with cautious hope. There is relief, but also realism. After years of economic strain, trust is earned slowly.
The bigger picture is that South Africa appears to be entering a more stable inflation phase. If expectations continue to drift lower and the Reserve Bank stays the course, 2026 could mark a turning point where interest rate relief feels tangible again.
Follow Joburg ETC on Facebook, Twitter, TikT
For more News in Johannesburg, visit joburgetc.com
Source: Daily Investor
Featured Image: Financial Advice & Services Ltd
