Interest rate decision not clear cut: The delicate balance that MPC members need to achieve

South Africans are eagerly awaiting the latest interest rate decision, which will be announced on Thursday afternoon.

While the South African Reserve Bank’s Monetary Policy Committee (MPC) does appear to have the necessary wiggle room to cut rates, given that April’s inflation rate of 2.8% fell below the target range of 3% to 6%, experts say it’s not a clear-cut case.

“Although the low inflation rate justifies a rate cut, the Reserve Bank remains cautious due to global uncertainties and the rand’s volatility,” said Thys van Zyl, CEO of Everest Wealth. “The Reserve Bank is likely to follow a balanced approach to support economic growth without compromising price stability.”

Van Zyl said that uncertainty surrounding international trade policy, as well as a possible shift to a lower inflation target, could see MPC members taking a more cautious approach.

“We are currently halfway through President Donald Trump’s 90-day pause on new tariffs, and the Reserve Bank is likely to maintain a wait-and-see stance until this period has lapsed.”

He added that South Africans should be prepared for an uncertain interest rate path, with economists predicting one to two more interest rate cuts for the remainder of 2025.

Investec Chief Economist Annabel Bishop said expectations of slowing global growth as well as a weakening domestic growth outlook have lifted expectations for an interest rate cut in May. However, the effects of a 0.25 basis point cut would be moderate.

“The rate cut on Thursday, widely expected by financial markets and the polling consensus, will bring only mild relief to consumers, which have shown evidence of being over indebted, with many using pension saving withdrawals to pay down debt,” Bishop said.

Economist Frederick Mitchell of Aluma is also anticipating a 25 basis point cut for today, stating that this would reflect a careful balance between encouraging growth and maintaining inflation control over the medium to long term.

“Ultimately, South Africa stands at a crossroads, requiring strategic policy adjustments to navigate its economic challenges,” Mitchell said.

“Collaborative efforts towards stabilising diplomatic relations, refining fiscal strategies, and adopting a forward-thinking monetary policy will be crucial for fostering sustainable growth and stability going forward.”

However, uncertainties remain, going forward as the SARB has hinted at new approaches to inflation targeting.

Everest CEO Thys van Zyl said speculation was rife that the inflation target could be lowered.

“There are strong indications that this change is imminent, and such a shift would undoubtedly impact the rand as well as the outlook for further interest rate cuts. Should the target be lowered, it could deal a blow to prospects for additional rate cuts.”

IOL