Economists are divided about the direction of interest rates, a Business Day survey shows, as the Reserve Bank’s monetary policy committee (MPC) starts its three-day economic outlook meeting this week.
A survey of eight leading economists revealed a 50/50 split on whether the central bank will exercise extreme caution due to global and domestic risks and hold rates steady at 7.50%, or cut by 25 basis points.
The MPC’s rate decision, expected to be announced on Thursday, is likely to reflect a balance of risks at global and domestic levels.
“Considering the level and direction of headline inflation, as well as the change in MPC voting patterns, the most plausible outcomes are that the SA Reserve Bank will probably hold rates or the MPC could cut the repo rate by another 25 basis points,” said Jee-A van der Linde, chief economist at Oxford Economics, who is expecting a hold.
Professor at the North-West University Business School, Raymond Parsons says global concerns “already featured strongly in the MPC’s January meeting statement”. “I would not criticise a ‘wait-and-see’ stance on March 20 should that be the decision, given the highly elevated levels of uncertainty both globally and domestically that have become more apparent,” Parsons said.
Frank Blackmore, lead economist at KPMG, echoed this sentiment but noted further reductions if inflation remains contained. He forecasts a 25-basis-point reduction.
While opinions differ on the immediate rate decision, six of the eight economists agreed that interest rate cuts are likely later in 2025, provided that inflation remains stable and global conditions do not worsen.
Chief economist at Citadel, Maarten Ackerman, said that past VAT hikes resulted in weaker consumer spending.
“As a result, the fiscus collected less than what they expected. And in such an environment, it actually depresses demand even further,” Ackerman said.
Economists, including Johann Els of Old Mutual, identified several factors behind these expectations. Key among them are lower-than-expected electricity tariff increases, a large petrol price cut in April and adjustments to the consumer price index (CPI) basket, which could mitigate inflation risks in the months ahead. Risks such as global economic instability and a weakening rand could delay the Bank’s plans.
Three economists argued the real interest rate is excessively restrictive, given the country’s sluggish growth.
Independent economist Elize Kruger highlighted that with a repo rate of 7.5% and inflation averaging about 4%, the real repo rate of 3.5% is well above the neutral rate of 2.7%, suggesting that monetary policy remains tight.
Elna Moolman, Standard Bank Group head of SA macroeconomic research, expects inflation to remain within the Bank’s target range, which could create room for rate relief later in the year.
The rand’s exchange rate is another major factor, as a weaker currency raises import prices, particularly for fuel and food, which could intensify inflationary pressures. A depreciating rand may make the Bank reluctant to cut rates too soon.
Monetary policy uncertainty in the US is adding to the complexity of the Reserve Bank’s decision-making.
Parsons emphasised “Trumponomics” and broader global economic volatility could force a more cautious approach, leading the central bank to hold rates until clearer economic trends emerge. Domestically, administered prices, such as electricity and fuel costs, pose an additional challenge.
Kruger noted the Bank’s oil price assumptions for 2025 appeared too high and if fuel prices decline further the Bank may have more room to cut rates than expected.
Adding to the uncertainty, the MPC itself appears divided. The January meeting saw two members dissenting from the decision to cut. This split, alongside the three consecutive cuts since last year, suggests that the Bank may choose to keep rates steady, Annabel Bishop, chief economist at Investec. said.
Parsons said: “MPC decisions this year are likely to be driven by weighing a number of risk factors determining SA’s overall country risk premium, such as the vulnerability of SA’s small open economy in a deteriorating global situation, the unknown outcome of pending parliamentary negotiations on finalising the 2025/26 budget, the volatility of the rand and economic recovery setbacks.” That suggests a May rate cut is possible if inflationary pressures continue to ease.
Els expects cuts in the third or fourth quarter, driven by a weaker US economy, a softer dollar and continued Federal Reserve rate cuts.
Similarly, Bishop forecasts cuts in July and November, citing a gradual reduction in inflation pressures. Blackmore expects another 25-basis-point cut “later in the year”. “When the economic environment is less uncertain allowing better understanding of the actual risks to inflation and if those risks are in line with expectations and inflation remains under [the] target rate.”
Van der Linde believes the Bank will hold rates until the third quarter after which it may start cutting.
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