Following the South African Reserve Bank’s (SARB) recent 25 basis point (bp) interest rate cut in September 2024, economists predict a gradual cycle of further reductions, with a total of 125bp in cuts expected by March 2026. The next 25bp cut is anticipated at the November 2024 Monetary Policy Committee (MPC) meeting, followed by similar cuts spread across key meetings in 2025 and early 2026. Investec’s chief economist, Annabel Bishop, noted that the cutting cycle is expected to remain gradual, with no deeper reductions (e.g., 50bp) at upcoming meetings.

This optimistic outlook is driven by several factors, including a sharp drop in South Africa’s inflation forecasts and a surprise 50bp interest rate cut by the US Federal Reserve. These developments have increased expectations for rate cuts in South Africa, with projections indicating the repo rate could decrease to 6.75% by March 2026, bringing the prime lending rate down to 10.25%.

Despite the positive sentiment, Bishop warned that the pace of rate cuts will remain cautious, as the SARB continues to monitor local economic data and market sentiment. The rand’s recent volatility, fluctuating from stronger levels to over R17.65 to the dollar, underscores the uncertainty in global markets. As such, South Africa’s rate cuts are unlikely to exceed 25bp per cycle, reflecting the Reserve Bank’s conservative approach amid fluctuating economic conditions. Positive collaboration between businesses and the government to raise GDP growth remains a key factor influencing future rate decisions.