Many leading economists, financial experts and major market institutions continue to project that the South African Reserve Bank will deliver a 25 basis point interest rate reduction today. However, South Africans are simultaneously being cautioned that the central bank may decide to keep interest rates elevated for a longer period, creating a scenario where early optimism may have been premature. This situation has created a sense of suspense across financial circles, with traders describing the event as one of the most finely balanced decisions of the year.
Key Takeaways
- Markets are heavily pricing in a final 25bps cut, with an 88 percent probability suggesting strong confidence even though economists caution that the SARB may still choose to hold.
- Inflation figures are aligning closely with the new 3 percent target, strengthening the argument for easing monetary policy as both headline and core inflation show encouraging trends.
- Internal MPC divisions hint at shifting sentiment, as the previous split vote suggests growing support for a rate cut, heightening expectations ahead of the final 2025 decision.
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Rate Cut Expectations Reach a Critical Turning Point
The Monetary Policy Committee of the Reserve Bank is scheduled to deliver its final interest rate announcement for 2025 later today. A large portion of the economic community expects one final dose of monetary relief before the country enters a more prolonged period of rate stability, particularly as South Africa transitions fully to its newly adopted inflation target of 3 percent. Some analysts have joked that the 3 percent target has become South Africa’s new national obsession, with investors refreshing inflation dashboards as if checking live sports scores.
Market pricing has indicated an overwhelming 88 percent probability of a quarter percentage point cut after the release of Wednesday’s inflation figures, which surprised traders and analysts by coming in below the consensus forecast.
A probability this high is rare, and in financial markets usually signals near-certainty, which is why the lingering doubt from economists is making the situation unusually tense.
Official data recorded headline inflation at 3.6 percent in October, which reflected an increase from the 3.4 percent registered in September, yet still undershot the market expectation of 3.7 percent. For context, South Africa has not hovered this close to its lower target band in almost a decade, making October’s print a notable milestone.
Core inflation, which strips out volatile components such as food and fuel, remained at 3.1 percent. This figure sits almost directly in line with the formal target of 3.0 percent, and many analysts argue that this level provides enough comfort for the Reserve Bank to justify easing borrowing costs.
Core inflation is often considered the Reserve Bank’s favourite metric, so when it behaves, markets tend to celebrate prematurely.
Even though the domestic interest rate environment is still seen as restrictive for households and businesses, and despite the Reserve Bank’s own technical modelling suggesting that a further 25 basis point reduction is feasible, a considerable sense of cautious confidence has developed that the central bank may choose to provide a small financial reprieve.
During its previous policy meeting in September, the Monetary Policy Committee was divided. Two members supported a 25 basis point reduction, while four preferred to keep rates unchanged. Observers believe this internal split may signal that conditions have shifted just enough for a cut to be implemented in the final meeting of the year.
Analysts Highlight that a Rate Cut is Not Guaranteed
Despite the swell of market optimism, a rate cut remains far from certain. Some economists have stressed that the central bank could still choose prudence over stimulus. In fact, the SARB has become known internationally for its cautious personality, often surprising markets by leaning conservative even when conditions suggest flexibility.
According to the analysis of Investec’s Chief Economist Annabel Bishop, the Reserve Bank might decide not to adjust interest rates at all at this meeting. The central bank has repeatedly emphasised the importance of maintaining elevated real interest rates to ensure inflation moves decisively towards the new 3.0 percent target.
Real interest rates in South Africa remain among the highest in the G20, a statistic that receives far less attention than it should.
A Long History of SARB Caution
While no further interest rate increases are expected and South Africa is considered to be firmly within a downward rate cycle, the Reserve Bank has a long-standing reputation for taking a cautious and measured approach. It does not often risk policy decisions that might unintentionally revive inflation or weaken its hard-earned credibility. Maintaining credibility is crucial for emerging markets, as even a small misstep can lead to immediate currency volatility.
KPMG’s lead economist, Frank Blackmore, expressed a view that closely aligns with this stance. He described market expectations as leaning towards no change in interest rates at this stage, largely because the central bank is likely to prioritise stabilising inflation expectations. Blackmore has previously warned that inflation expectations in South Africa tend to be stubborn and slow to adjust, which is why the SARB keeps such a close eye on them.
The core reason for this cautious approach is to give businesses, consumers and broader market participants enough time to adjust their behaviour and pricing strategies to the new 3 percent inflation target, with a tolerance band of plus or minus one percentage point. This expectation-setting process is often overlooked but plays a powerful role in how prices evolve, especially in markets like food, utilities and transport.
Interest Rates May Stay Elevated for Longer
Blackmore explained that for expectations to settle around the new midpoint, interest rates would need to remain at the current elevated level slightly longer. Once the Reserve Bank is satisfied that inflation expectations across the economy have converged towards 3 percent, it will be far more confident in adjusting the policy rate more frequently. Many investors believe 2026 will be the real turning point for large cuts, marking the start of a more meaningful easing cycle.
Provided inflation remains contained near 3 percent and does not accelerate unexpectedly, South Africans may eventually see a series of larger rate cuts. But this can only occur once the central bank believes that the inflation path is stable and predictable. Historically, when the SARB begins cutting in earnest, cycles tend to last multiple meetings, offering sustained relief over time.
Blackmore also pointed out that inflation is currently edging upwards and is anticipated to climb a little further before any sustained decline takes hold. For this reason, he believes South Africa has not yet reached the point where more aggressive monetary easing is safe. Energy prices, transport costs and global tensions are all factors that could disrupt the inflation outlook in the coming months.
Homeowners Continue to Struggle Under Prolonged Financial Pressure
High Borrowing Costs Hit the Property Market
The ongoing interest rate debate has had a direct and painful impact on homeowners and the property industry. This was highlighted by Renier Kriek, Managing Director at Sentinel Homes, who emphasised that elevated borrowing costs have placed households and real estate businesses under immense pressure. Bond repayment calculations show that a typical homeowner with a R1 million mortgage is paying several thousand rand more per month compared to pre-2022 levels.
Although the formal adoption of the lower inflation target provides greater clarity regarding the central bank’s long-term objectives, it also means that the Reserve Bank’s cautious and traditionally conservative stance on monetary policy is likely to persist and possibly intensify. Some analysts describe this target shift as one of the most important monetary policy changes since inflation targeting was first adopted in South Africa in 2000.
Kriek believes the central bank is prioritising the achievement of the new inflation target above stimulating economic growth. This means the Reserve Bank may be prepared to expose households and enterprises to short term financial difficulty to ensure long term price stability. Unfortunately, the burden of this approach is being borne directly by consumers and the broader business sector.
Small businesses, particularly in the construction and property maintenance industries, have been reporting weaker demand as financing costs remain high.
He explained that many observers have long argued for a strategy that places economic growth at the forefront, before exerting heavy pressure to drive inflation down to target. The Monetary Policy Committee, however, has focused on anchoring inflation expectations at the lower target before shifting its attention to growth. While this approach has delivered certain benefits, including lower long dated government borrowing costs and a temporary period of improved fiscal breathing space, it has also resulted in prolonged periods of uncomfortably high real interest rates that have weighed heavily on households. Long term bond yields have indeed improved, but the trade-off is visible in stressed household budgets and weaker property sales.
High Rates Limit Investment and Intensify the Housing Supply Crisis
Kriek added that elevated real interest rates act as a substantial barrier to fixed capital formation. Investors are discouraged from devoting resources to large scale projects such as industrial facilities, infrastructure development and expansions in productive capacity. South Africa’s gross fixed capital formation has been stagnant for years, and high rates make this stagnation even harder to reverse.
This hesitation ultimately drags down economic growth, restricts job creation and worsens structural challenges such as the persistent shortage of housing. South Africa currently faces an estimated shortage of 3.5 million formal homes, and the households most severely affected include the poorest communities and the so called gap market, which encompasses properties priced between R250 000 and R850 000. The gap market has long been recognised as the most underserved housing segment, trapped between not qualifying for subsidies and not being able to afford private financing.
Approximately 80 percent of households remain effectively excluded from the formal housing market due to affordability constraints. Kriek warned that the situation is not only an economic vulnerability but also represents a significant social and political risk that cannot be ignored. Housing shortages have historically contributed to higher levels of social tension worldwide, making this a critical risk for policymakers to monitor.
A Carefully Timed Rate Cut could Restore Confidence
He noted that the Monetary Policy Committee must now weigh the immediate need for financial relief against the long term advantages of maintaining credibility around the new inflation target. Although some analysts believe the likelihood of a rate cut today is limited, Kriek suggested that South Africa’s shifting economic sentiment and ongoing structural constraints might create an uncommon opening for the central bank to act decisively. A confidence-boosting cut could also help support the rand in the short term by attracting flows from investors who favour clearer policy direction.
A modest 25 basis point reduction could, in his view, deliver an important signal to both consumers and investors. It would provide tangible relief, support confidence at a time when certain reforms are beginning to gain traction and, considering the broader economic cycle, would be unlikely to generate new inflation pressures.
Consumers often underestimate how even a small cut can create psychological relief, which in turn stimulates spending and economic activity.
With the inflation outlook appearing reasonably stable and supply side constraints clearly identifiable, the argument for a small, sentiment boosting reduction in the repo rate appears strong. Historically, central banks use small cuts as a way to communicate direction without risking credibility, making this a powerful symbolic move.
The Monetary Policy Committee will reveal its interest rate decision on Thursday, 20 November, at 15:00. Many South Africans are expected to watch the announcement live, highlighting how deeply monetary policy has entered public consciousness.
Conclusion
The combination of softer inflation data, strong market conviction and a narrowing divide within the Monetary Policy Committee has created an unusually charged atmosphere ahead of the final interest rate announcement of 2025. While conditions appear increasingly favourable for a modest cut, the Reserve Bank’s reputation for caution and its commitment to firmly anchoring expectations around the new 3 percent target mean that nothing is guaranteed. As a result, South Africans are left waiting for a decision that carries both symbolic and practical significance, with even a small adjustment capable of influencing sentiment, spending behaviour and the broader economic mood heading into the new year.
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