Africa-Press – South-Africa. The Reserve Bank’s Monetary Policy Committee (MPC) will vote on whether to cut or hold South Africa’s interest rates at its meeting this week.
Experts are broadly expecting another 25 basis point cut to be announced in 2025, with this set to be the last interest rate cut for the year. However, they are uncertain about when this cut will be announced, with the outlook highly uncertain.
The Reserve Bank has been cutting interest rates since September 2024 and has implemented 100 basis points of cuts since.
This has seen South Africa’s repo rate fall from a 15-year peak of 8.25% to 7.25% and the prime lending rate from 11.45% to 10.45%.
These cuts have provided some relief for South African households, along with the low inflation environment that encouraged the MPC to implement rate cuts.
However, experts have warned that, while inflation is expected to remain in the Reserve Bank’s target range in 2025, anchored around the 4.5% midpoint, the MPC is likely to remain cautious.
Global geopolitical shifts and some local uncertainty present several upside risks to the inflation outlook, which could see the MPC hold rates steady for the remainder of the year.
In addition, the National Treasury and the Reserve Bank are in talks to potentially lower and narrow South Africa’s inflation target, which could also see the MPC remain hawkish.
While the decision is not yet final, the Reserve Bank believes it would be the right move for South Africa, promising several economic benefits.
For example, the central bank said a lower inflation target would, in the long term, lead to lower inflation and interest rates, and could accelerate the country’s economic growth.
However, the Reserve Bank has also been transparent about the short-term pain that may come with lowering the target, including higher interest rates for longer.
Therefore, in this uncertain environment, the MPC is expected to announce only one more interest cut for South Africa in 2025.
Below are some expert predictions for the MPC’s next meeting on Thursday, 31 July.
Investec’s Annabel Bishop
Investec chief economist Annabel Bishop
Investec chief economist Annabel Bishop expects the MPC to announce one more 25-basis-point interest rate cut in 2025, but said this may not come in July.
“It’s unlikely a further marked drop will occur in the Reserve Bank’s CPI inflation forecast this month,” she said.
“The SARB has slowed its rate cut trajectory, and we don’t expect a July cut following so soon after May’s move.”
Bishop explained that, with the repo rate well above the neutral interest rate, South Africa has room for three more interest rate cuts this year, and more next year.
However, she warned that much will depend on the change to the inflation target, both numerically and the time period in which it is brought in.
“A structurally lower inflation, and so interest rate, environment will be positive for investors, financial markets, corporates and individuals in general overall,” she said.
“However, there could be some initial pressure on interest rates.”
Bishop said that while South Africa can have an interest cut at each remaining MPC meeting this year, the SARB is likely to be cautious on the uncertainty around United States tariffs.
KPMG’s Frank Blackmore
KPMG lead economist Frank Blackmore said there are several factors the MPC will need to consider ahead of its meeting on Thursday.
“Inflation has remained below the lower band at 3%. Therefore, in a purely data-driven process, one might expect there to be room for a 25 basis-point reduction at the end of the month,” he said.
“However, the decision is not that straightforward. Inflation expectations are currently closer to the 4% mark.”
He added that the inflation target change, if implemented, would mean that interest rates may need to remain slightly higher for longer.
“This could mean that rates remain unchanged until the end of the year to ensure inflation expectations are aligned with the revised target,” he said.
Another important factor for the MPC to consider is developments among South Africa’s trading partners, particularly with countries like the United States.
“Following the imposition of tariffs under President Donald Trump, there is a market assumption that US inflation figures for June will show an uptick due to those tariffs,” he said.
“This would reduce the likelihood of any rate cuts in the US and, in turn, make a local rate reduction less likely as well.”
TreasuryONE’s Wichard Cilliers
TreasuryONE’s director and head of market risk, Wichard Cilliers, said the MPC faces a challenging interest rate decision on Thursday.
He explained that while the June CPI printed 3.0%, rising food inflation and looming US tariffs on South African exports complicate the outlook.
“A potential 25 basis point rate cut is anticipated but uncertain, as strong arguments exist for either a cut or hold,” he said.
Seeff Property Group’s Samuel Seeff
Seeff Property Group chairman Samuel Seeff called on the Reserve Bank to “take a bold approach” and provide another rate cut at its July meeting.
He pointed out that the current rate is still about 100 basis points higher compared to the pre-pandemic rate in January 2020.
Seeff argued that the bank’s “overly cautious” stance has meant that it has missed at least two prior opportunities to cut the rate earlier and provide a more meaningful economic boost.
“While the four rate cuts since mid-2024 have provided welcome relief to consumers, homeowners and property buyers, it has had little overall impact on the economy and property market,” he said.
“Overall property transaction volumes for the first half of this year compared to last year are down by about 16% despite the rate cuts.”
Seeff said the delays in cutting the rate, despite the favourable conditions, have been detrimental to the primary objective of economic growth and job creation. He said there is simply no longer any time for a “wait and see” approach.
“The economy and the property market need an injection of energy, and we urge the bank to focus on what the South African economy needs,” he said.
Old Mutual’s Johann Els
Old Mutual chief economist Johann Els believes the MPC will likely cut interest rates at its meeting on Thursday.
However, he warned that after this cut, rates are expected to move sideways for an extended period of time as the bank adjusts to a potentially lower inflation target.
Els explained that the South African consumer is in a good position, with cost-of-living pressures easing and household debt stabilising.
As a result, consumer spending has picked up over the past few months as more disposable income is freed up, driving economic growth.
Els expects this trend to continue as inflation has remained below the lower end of the Reserve Bank’s 3% to 6% target range so far in 2025.
Crucially, inflation expectations have come down for 2025, with all the social groups surveyed expecting it to average less than 4% for the year.
This gives the MPC more room to cut interest rates in the second half of the year. Els said he expects the MPC to cut rates by 25 basis points at its July meeting, which would give more relief to South African households.
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