The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) will meet on Thursday to decide whether to implement another interest rate cut, following the 25 basis points (bps) reduction announced in September. This recent cut brought the benchmark rate down to 8%, providing much-needed relief to cash-strapped South African consumers for the first time in nearly four years.
Many South Africans are hoping for further rate cuts this month, in line with trends seen in other central banks around the world. The September rate cut marked the first decrease in rates since the initial Covid-19 response in 2020, when the rate was reduced to 3.5%. After that, the SARB embarked on a series of interest rate hikes starting in November 2021, which ultimately peaked at 8.25% in May 2023.
Given the economic strain many consumers are facing, especially with the festive season approaching, there is growing optimism that the Reserve Bank may continue to reduce rates to support the economy.
Nedbank analysts expect the SARB to cut rates by another 25 bps, in part due to inflation continuing to undershoot the bank’s 4.5% target. While inflation remains relatively subdued, the bank has cautioned that there are risks to the inflation outlook, particularly in the wake of global economic shifts. Nedbank pointed out that recent changes in US economic policy, especially following the possible return of Donald Trump to the US presidency, could place additional pressure on the rand, leading to potential inflationary risks in South Africa.
Thys van Zyl, CEO of Everest Wealth, agrees with Nedbank’s outlook, suggesting that the chances of an interest rate cut on Thursday are high. Van Zyl even anticipates another possible rate cut in January, depending on global economic factors.
He also noted the importance of monitoring US economic policy, especially if President Trump implements higher tariffs on imports from emerging markets like South Africa. This could place further pressure on inflation and the rand, potentially complicating South Africa’s monetary policy decisions.
Van Zyl added that while the US Federal Reserve is also expected to cut rates in December, the Fed may become more cautious in the following months, reducing the pace and size of rate cuts.
For South African consumers, another interest rate cut would offer significant relief, especially during the holiday season. Lower interest rates can lead to reduced borrowing costs, which can benefit households and businesses alike. However, the extent to which the SARB will continue cutting rates depends on the balance between managing inflation and supporting economic growth.
As the MPC’s decision on Thursday draws closer, all eyes will be on how global and domestic factors, including the strength of the rand and inflation trends, influence the SARB’s outlook for the months ahead.
