Experts tip 25bps rate cut as Sarb readies for final monetary policy meeting of 2025

Economists and analysts believe a 25 basis point interest rate cut is likely when the South African Reserve Bank’s (Sarb) Monetary Policy Committee (MPC) meets next week

This comes as Finance Minister Enoch Godongwana on Wednesday confirmed that government had officially lowered the inflation target from the previous 3–6% range to a single-point target of 3%, in line with global best practice.

Neil Roets, CEO of Debt Rescue, on Thursday said the new target represented a “significant structural shift” that could improve household financial stability over time.

“We at Debt Rescue see this as a significant structural shift that has the potential to improve long-term financial stability for households. A lower target aligns South Africa with global best practice and, over time, should translate into lower borrowing costs and stronger consumer buying power.”

Roets said the move was positive for consumers who have endured years of high living costs but urged caution on near-term rate expectations.

“At the same time, we remain cautiously optimistic about what this means for interest rates next week. Market expectations still suggest a high likelihood of a 25 basis point cut, and the South African Reserve Bank has repeatedly stated that lower inflation should support lower interest rates in the future.”

He noted that two MPC members had already voted in favour of a rate cut at the previous meeting, a signal that the committee was “edging closer to easing.”

However, he said there are still factors that could delay a reduction.

“Global conditions remain uncertain, particularly with the US Federal Reserve signalling a pause on its own rate cuts. We have also seen the Reserve Bank adopt a slightly more cautious tone in recent months,” Roets said.

“While the new 3% target is clearly a step toward a low-inflation, low-interest-rate future, the MPC will still weigh incoming data very carefully at every meeting.”

Unisa economist Dr Eliphas Ndou said his research supports the adoption of a lower inflation target, arguing that it will ultimately lower lending rates and stimulate economic confidence.

“Economic policies should be regularly evaluated and then revised to address emerging economic circumstances,” Ndou said.

“I expect inflation expectations to move to a lower trajectory, and the lending rate to move to a lower equilibrium level, which should influence the planning of investment projects and economic growth.”

Ndou said the MPC could lower the repo rate in pursuit of greater credibility as it resets policy and lending rates to new equilibrium levels, which he said would boost business and consumer confidence.

Benay Sager, executive head of DebtBusters, also welcomed the revised inflation target, describing it as “good news with long-term positive implications” for consumers.

“We think this has long-term positive implications for consumers. If the lower inflation target is achieved, then in the long term one has to believe that interest rates will follow,” Sager said.

“However, we must remember that the bulk of inflation in South Africa is a result of regulated factors such as electricity, petrol, and rates.”

However, he cautioned that much of South Africa’s inflation is driven by regulated costs such as electricity, fuel, and municipal tariffs.

“I think an interest rate cut is extremely likely. In a way, it’s almost guaranteed that it will happen, so that will be good news for the consumer.”

Annabel Bishop, Investec chief economist, said the MPC meeting is expected to deliver a 25 basis point cut, with markets pricing in roughly an 80% probability.

“However, the Sarb may choose not to ease the repo rate at its last MPC meeting of the year, as the US has signalled it is unlikely to cut its interest rates again this year, given the reduced data publications in the US on the government shutdown,” Bishop said.

“However, the Sarb has made it clear that it will be flexible in achieving the inflation target this year and next.”

BUSINESS REPORT