Business
Big Shift in South Africa’s Interest Rate Expectations Amid Global Economic Uncertainty

South Africa’s interest rate expectations have shifted significantly in early 2025, influenced by global economic factors, including the election of Donald Trump as President of the United States. Economists now predict a much slower rate cut cycle, with only one or two cuts expected this year.
Investec Chief Economist Annabel Bishop anticipates a 25 basis point (bp) cut in the repo rate during the Monetary Policy Committee (MPC) meeting on 30 January. However, further cuts may be delayed until at least July.
This marks a departure from previous expectations of multiple rate reductions throughout the year.
Why the Shift in Expectations?
The recalibration in South Africa’s interest rate outlook is tied to slower projected interest rate cuts in the US. Initially, the US Federal Reserve was expected to implement three 25bp cuts in 2025, but current forecasts now suggest only one definite cut, with a second cut unlikely.
The uncertainty stems from concerns over the economic impact of President Donald Trump’s policies.
- US Trade Policies: Protectionist measures and potential trade tariffs could fuel inflation, affecting global markets, including South Africa.
- Rand Volatility: Since Trump’s election on 5 November 2024, the rand has depreciated by 7% against the dollar, heightening risks for emerging markets.
SARB Governor Lesetja Kganyago warned that US protectionist policies might slow disinflation efforts globally.
Inflation and Growth Outlook for South Africa
While inflation is under control, averaging 4.5% in 2024, risks remain for 2025:
- Higher Energy Prices: Rising domestic energy costs could push inflation higher.
- Weaker Rand: Continued rand depreciation could add pressure to inflation and limit the scope for further interest rate cuts.
Policymakers expect inflation to average 4% in 2025, within the SARB’s target range.
Impact on South Africa’s Economy
The slower pace of rate cuts has implications for:
- Consumers and Borrowers: Households may face prolonged higher borrowing costs.
- Rand Stability: A weaker rand could pressure the trade balance, though aggressive Chinese stimulus might benefit South Africa as a commodity exporter.
- Monetary Policy: Central banks, including the SARB, must remain cautious in their approach to balance growth and inflation risks.
What Lies Ahead?
As the SARB evaluates the global and local economic environment, interest rate policy will depend on emerging risks. Bishop notes that South Africa’s forward rate agreement curve suggests limited scope for cuts this quarter, indicating a cautious monetary policy stance.
With geopolitical tensions, trade uncertainties, and inflation risks on the horizon, the SARB faces a complex balancing act.
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