More Interest Rate Cuts Expected for South Africa

South Africans can likely expect further interest rate relief after the South African Reserve Bank (SARB) cut rates by 25 basis points this week, lowering the repo rate to 6.75%. The Monetary Policy Committee (MPC) voted unanimously for the cut, marking the bank’s first move since holding rates steady in September.

Markets had been divided over whether the MPC would take action in November, but a combination of cooling inflation, restrictive financial conditions and improved sentiment created the ideal opportunity for a cut. The SARB also revised its inflation outlook downward, now forecasting:

• 3.3% for 2025,

• 3.5% for 2026, and

• 3.6% for 2027.

More Cuts Likely Through 2026 and 2027

According to Investec Chief Economist Annabel Bishop, the SARB is expected to hold rates unchanged at its January meeting, before cutting again in March and July 2026. Interest rates are likely to remain steady through 2027, except for a further 25-basis-point cut expected in March 2027, taking the repo rate down to 6.0%.

These expectations broadly align with SARB’s own forward guidance.

In the United States—whose rate cycle heavily influences South Africa—markets are pricing in a high likelihood of rate cuts beginning in early 2026. By September next year, three US cuts are anticipated, which exceed the expected pace of South African easing and may support additional rand strength.

Inflation Outlook Improving

Although local inflation has edged higher recently, Bishop noted this was largely due to base effects from last year’s unusually low readings. The underlying trend remains benign, supported by:

• a stronger rand,

• softer global fuel prices, and

• easing food inflation.

“Food price inflation is set to moderate further despite temporary upward pressure in November,” said Bishop. Meat inflation in particular is expected to slow, even though beef prices have pushed forecasts slightly higher.

The MPC also observed a positive shift in inflation expectations following the government’s decision to lower the official inflation target. This has given the committee greater confidence in delivering more rate cuts.

Weak domestic economic growth is adding to the disinflationary pressure, as are global factors such as falling commodity prices and a softer US dollar.

However, Bishop warned that risks remain, especially if oil prices rise or the dollar strengthens. OPEC+ has been steadily increasing output, helping hold down global oil prices, but any reversal could quickly feed into South African inflation.

Interest Rate Path: Investec Forecast

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