SARB expected to cut interest rates again despite inflation and global pressures
image: Internet
by Kelebogile Matlou
The South African Reserve Bank (Sarb) is expected to lower interest rates again this Thursday, even though inflation is rising, export costs are increasing, and the cost of government-controlled services is changing. This shows the bank is trying to respond to a changing and uncertain economy.
Inflation in South Africa has increased slightly from 2.8% in May to 3.0% in June. Experts are watching to see how the Sarb will balance helping the economy grow while also controlling rising prices. The global economy, especially changes in commodity prices and supply chain problems, has a big impact on inflation in South Africa.
On Monday, investors were also looking for signs about possible rate cuts, although many do not expect the Sarb to make major moves until after the US Federal Reserve meeting on Wednesday. Samuel Seeff, chairman of the Seeff Property Group, again urged the Sarb to make a strong decision and cut the interest rate by at least 25 basis points. He said the current rate is still about 100 basis points higher than it was before COVID-19 in January 2020. He believes the Sarb has been overly cautious and missed chances to cut rates earlier.
He explained that delays in lowering rates have hurt efforts to grow the economy and create jobs. “While the four rate cuts since mid-2024 have provided welcome relief to consumers, home owners and property buyers, it has had little overall impact on the economy and property market. Overall property transactions volumes for the first half of this year compared to last year are down by about 16% despite the rate cuts,” Seeff said.
The US has not lowered its interest rates in 2025, while South Africa has already cut twice once in January and once in May by 25 basis points each time. This has made the gap between US and South African interest rates much smaller, reducing the returns investors get in South Africa compared to the US.
Tatonga Rusike, an economist at Bank of America, said he expects one more interest rate cut in July and then no further cuts for the rest of the year.“Our policy rate outlook remains unchanged. We expect the Sarb to cut the policy rate by 25 basis points on July 31 to 7% and then stay on hold for the rest of 2025,” Rusike said.
image: Internet
“Inflation is benign, averaging 3.5% in 2025. We are forecasting low oil ($65 per barrel) and an appreciating rand given a weakening US dollar. Risks to our call relate to oil prices and a likely move to a lower inflation target,” he said.
In its last meeting in May, the Sarb’s Monetary Policy Committee already lowered the policy rate by 25 basis points to 7.25% per year. The prime lending rate also dropped to 10.75%. At the time, the Sarb predicted global interest rates would drop slightly this year. Oil prices have gone up and down recently due to the conflict between Israel and Iran. Prices jumped to $79 per barrel in mid-June, but fell below Sarb’s forecast of $70 per barrel after a ceasefire was reached.
Nicky Weimar, chief economist at Nedbank, also expects another 25 basis point rate cut this week. She said inflation is still low, risks are balanced, and there is little pressure from consumer demand to increase prices. “Since the May MPC meeting, the risks to the inflation outlook still appear broadly balanced. In our view, food prices pose the most significant upside risk over the near term,” Weimar said.
“Furthermore, international oil prices have fallen to around $70 per barrel as the focus shifted from the conflict in the Middle East to underlying market fundamentals.We expect the dollar to tread water for a while, frozen in place by policy uncertainty. By implication, we forecast a relatively steady rand. Finally, the domestic economy remains sluggish, and there is no evidence of significant demand pressure on prices,” Nicky Weimar said.
