After nearly two years of elevated borrowing costs, South Africans are finally seeing signs of relief.
Inflation has eased into the lower end of the South African Reserve Bank’s (SARB) 3%–6% target range, and markets are buzzing with speculation that 2025 could usher in a new cycle of interest rate cuts.
Yet economists remain divided. While some believe the data justifies lower rates to support growth, others warn that cutting too soon could undermine the SARB’s hard-won credibility.
Policy Background
The SARB’s repo rate currently stands at 7.00%, after a gradual easing from 8.25% earlier this year.
In its September 2025 Monetary Policy Committee (MPC) meeting, the central bank opted to hold rates steady, citing a need to “assess the impact of prior cuts amid ongoing fiscal and trade risks,” according to a Reuters report.
Inflation dropped to 3.3% year-on-year in August, down from 3.5% in July — comfortably within the target range. This has strengthened calls for more monetary easing to stimulate demand in a sluggish economy.
“We are entering a phase where monetary policy can cautiously shift from restrictive to neutral,” said Rashad Cassim, SARB Deputy Governor, in May 2025. “However, our actions will remain guided by inflation expectations.”
The Case for Rate Cuts
Several market economists argue that South Africa’s economic slack justifies rate relief.
Casey Sprake, economist at Anchor Capital, told IOL Business Report that inflationary pressures have subsided significantly, creating “a modest easing trajectory” for 2025.
Reza Ismail, Head of Bonds at Prescient Investment Management, added that money markets are already pricing in at least one 25-basis-point cut before mid-2025.
“Forward rate agreements imply a growing probability of a reduction, reflecting the market’s confidence that inflation will remain contained,” he said.
Independent research firm Capital Economics agrees. In its July 2025 Africa Economics Focus, the firm projected the repo rate could fall to around 5.75% by the end of 2026, citing South Africa’s “larger-than-assumed output gap” and subdued domestic demand.
“The case for easing is clear — growth is stagnating, core inflation is subdued, and policy remains tight,” said John Ashbourne, Senior Emerging Markets Economist at Capital Economics. “The SARB can afford to act.”
The Case for Holding Rates
Others urge caution. Despite easing inflation, the SARB has repeatedly emphasized that global volatility, commodity price swings, and fiscal uncertainty could complicate a premature pivot to lower rates.
In September, the central bank left the repo rate unchanged at 7%, warning that external risks — particularly oil price fluctuations and geopolitical tensions — could push inflation back above 4%.
“Borrowing costs are now roughly in the neutral zone,” Deputy Governor Cassim told Reuters earlier this year. “Further adjustments should be made carefully.”
Economists in this camp argue that while inflation may have stabilized, structural issues — such as electricity shortages, weak investment, and high unemployment — mean monetary easing alone will not drive sustainable growth.
“Cutting rates won’t fix South Africa’s supply constraints,” noted Annabel Bishop, Chief Economist at Investec, in a recent client note.
“The Reserve Bank is rightly cautious about undermining its inflation-fighting credibility.”
What Analysts Expect
According to S&P Global Market Intelligence, a proprietary probability model based on purchasing manager data now places the odds of a rate cut at over 90% within the next three meetings.
However, most analysts expect any reductions to be incremental, likely 25 basis points at a time.
BusinessTech reported that the SARB may begin easing “as early as the first quarter of 2025,” provided inflation remains near 3%.
Meanwhile, Daily Investor estimated that a 25 bp cut could save homeowners with large mortgages up to R1,600 per month in repayments.
Scenarios for 2025
1. Gradual Easing
The SARB cuts rates modestly in early 2025 and again midyear, moving the repo rate toward 6.75%. This is the base case for most economists.
2. Extended Pause
The central bank holds rates through most of 2025, preferring to assess the impact of previous cuts and awaiting fiscal clarity.
3. Aggressive Easing Cycle
If inflation continues to fall below 3%, the SARB could implement multiple cuts, bringing the repo rate closer to 6% by year-end — a scenario favoured by Capital Economics.
Impact on Consumers and Businesses
-
Borrowers and Homeowners: Even a small 25 bp cut could provide noticeable relief. Lower rates mean cheaper credit and reduced debt servicing costs.
-
Businesses: Small and medium enterprises could benefit from improved access to financing, though energy and infrastructure constraints remain limiting factors.
-
Investors: A lower rate environment could boost bond and equity valuations, while a stronger rand may temper import costs.
-
Property Market: Reduced lending rates often revive demand, but supply bottlenecks and affordability issues persist.
Conclusion
South Africa’s economic trajectory in 2025 hinges on the SARB’s next moves. With inflation cooling and growth faltering, a rate cut appears increasingly likely — but not inevitable.
The central bank’s cautious tone signals that it will move only when confident that price stability is secure.
For consumers and businesses alike, the message is clear: the era of high borrowing costs may be nearing its end, but the SARB will decide the pace — not the market.
Also Read
