Africa-Press – South-Africa. Following the South African Reserve Bank’s (SARB) interest rate cut this week, economists say South Africans can expect further rate cuts in the future.
The SARB cut interest rates yesterday by 25 basis points, lowering the repo rate to 6.75%, in a unanimous decision by the Monetary Policy Committee (MPC).
After not cutting the interest rate in September, attention shifted to November’s meeting with market bulls anticipating the cut.
While the market was divided on whether the SARB would follow through, there was a sense that positive sentiment, restrictive rates and no immediate inflation pressure made for the prime opportunity to cut.
The latest meeting saw a downward revision to the MPC’s inflation forecast for the year to 3.3%, with 3.5% predicted for 2026 and 3.6% for 2027.
Investec Chief Economist Annabel Bishop expects the SARB to leave the repo rate unchanged in January next year, but to cut it again by 25 basis points in March.
Another 25-basis-point cut is expected in July after a hold in May, with the SARB set to then hold rates until 2027.
Investec sees another 25 basis point cut in March 2027, which will bring the repo rate down to 6%. This aligns broadly with the SARB’s current forecasts.
In the US, whose interest rate decisions are key for South Africa, expectations have been falling for an interest rate cut this year to 30%, but there is an expectation for a 89% increase in January.
By mid-2026, a second 25-basis-point cut in the US is currently being factored into financial markets, with a third expected by September next year.
These expectations exceed those for South African interest rates and could lead to further ZAR/USD strength.
Inflation changes
Investec Chief Economist, Annabel Bishop
Although South Africa’s inflation has risen in recent months, this is primarily due to base effects for the year prior, which inflation was falling and should dissipate over time.
This should allow for lower inflation prints next year if price pressures remain modest.
“Both for South Africa and African countries in general, lower inflationary pressures have occurred as currencies appreciated against the US dollar on dollar weakness, along with moderations in fuel costs aiding inflation lower as well,” said Bishop.
“Food price inflation has also been modest, and non-food agricultural commodities have seen falling prices.”
Investec expects to see further moderation in food price inflationary pressure, even if the statistical base effects in November provide temporary upward pressure.
That said, food price inflation is expected to continue its decline, and aid CPI inflation is also likely to fall over the year, with meat price inflation expected to slow.
The MPC noted that food price inflation has peaked, although there has been a slight upward revision to this forecast, mainly from beef prices.
The lowering of the inflation target in the medium-term budget has seen a shift in inflation expectations towards the new target, with the MPC noting the progress, allowing for greater confidence in further interest rate cuts.
“The economy is weak, which is subduing inflationary pressures, while typical international inflationary forces have instead been weak this year, such as falling global food and fuel prices and the US dollar,” added Bishop.
“However, while further interest rate cuts are expected in the cycle, global dynamics will be key in terms of impacts on domestic inflation, particularly around oil prices and the dollar.”
OPEC+ has been gradually increasing its output, which has allowed for the subdued nature of oil prices and, in turn, contributed to the very low inflationary pressures in South Africa. That said, risks could rise, especially with persistent dollar strength.
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