Three more interest rate cuts to pre-Covid levels
Economists predict that the MPC will slash the repo rate by 25 bp. After that, we can cautiously expect to hit an equilibrium again.
Economists are expecting yet another repo rate cut later this week, when the South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) meets on Thursday.
This would mark the third consecutive rate cut, with many hopeful this trend could help the country return to pre-Covid economic stability in the long term. Economists say that, after Thursday’s meeting, we are only three repo rate cuts away from our pre-Covid interest rate.
However, the road ahead depends on global economic policies, particularly potential shifts under the Trump administration.
A CLOSER LOOK AT INFLATION AND RATE CUTS
Inflation dropped to 4.4% in 2024, slightly below SARB’s target of 4.5%.
Over the past three months, inflation figures have been steady at 2.8%, 2.9%, and 3%, respectively. This has given SARB room to reduce the repo rate further, with economists predicting another 25 basis point cut in January.
Frank Blackmore, a senior economist and joint head at KPMG’s Economics team, explained that lower inflation creates opportunities for SARB to adjust interest rates. “Reducing the repo rate will put more money in people’s pockets and enable businesses to invest more. Savings from lower debt servicing costs can then be applied to more productive uses,” Blackmore said.
The last MPC meeting was held on November 21, 2024, when SARB reduced the repo rate from 8.00% to 7.75%. This followed another cut in September, where the rate was dropped from 8.25% to 8.00%.
LONG-TERM OUTLOOK DEPENDS ON GLOBAL FACTORS
Looking ahead, Blackmore noted that those three more rate cuts we are hoping for could very well be on the cards in 2025. These reductions would help South Africa achieve economic equilibrium, easing financial pressures on households and businesses. However, the extent of these cuts may depend on external factors, including policy changes in the United States.
“We’ll have to wait and see what policy changes the Trump administration introduces and how those could impact South Africa’s economy. These changes may influence the Reserve Bank’s decisions on future rate reductions,” Blackmore added.
WHAT THIS MEANS FOR SOUTH AFRICANS
If SARB continues to lower interest rates, South Africans could benefit significantly. Reduced rates mean lower monthly repayments on loans and bonds, freeing up disposable income. For businesses, cheaper access to credit could spark new investments and drive growth.
While economists remain optimistic, they caution that global economic developments and local fiscal policies are still fairly unpredictable and will play a critical role in shaping the path ahead. For now, all eyes are on Thursday’s meeting and the potential for another step toward economic recovery.
WILL A DROP IN INTERESTS RATES HELP YOUR BUDGET SIGNIFICANTLY?
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