South Africa may still be on track for additional interest rate relief, even though borrowing costs have been placed on hold for the time being. Analysts believe that as many as three further interest rate cuts could materialise between now and mid-2027, provided inflation continues to ease and no major economic shocks emerge.
Key Takeaways
- Interest Rates Remain On Hold For Now: The SARB has kept the repo rate unchanged at 6.75%, leaving the prime lending rate at 10.25% as policymakers wait for clearer confirmation that inflation will continue to ease.
- Further Rate Cuts Are Still Likely: Most analysts expect up to three 25-basis-point interest rate cuts between now and mid-2027, assuming inflation trends lower and economic conditions evolve in line with forecasts.
- Inflation Risks Have Not Disappeared: While overall inflation has moderated, elevated food, services and electricity costs remain key upside risks that could influence the timing and pace of future rate cuts.
About Arcadia Finance
Take the hassle out of borrowing with Arcadia Finance. With no application fees and access to 19 respected NCR-compliant lenders, you get a fast, streamlined process and loan options tailored to fit your finances.
Current Interest Rate Decision
At its first Monetary Policy Committee meeting of the year, held on Thursday, 29 January, the South African Reserve Bank decided to leave the repo rate unchanged at 6.75%.
As a result, the country’s prime lending rate remains steady at 10.25%, maintaining borrowing costs for households and businesses at current levels.
The decision was not unanimous.
- Four MPC members supported keeping rates unchanged
- Two members favoured a 25 basis point cut
This split highlights growing confidence that inflation pressures are easing, even though policymakers remain cautious.
A divided MPC vote often signals that policy direction may shift soon if incoming data supports a change.
Inflation Trends And Policy Outlook
The rate hold followed the release of December’s headline Consumer Price Inflation data, which edged slightly higher to 3.6% year on year, compared with 3.5% in November.
SARB Governor Lesetja Kganyago indicated that the December figure was likely the high point in the current inflation cycle. The Reserve Bank expects inflation to trend lower through 2026, aligning with its medium-term targets.
This view is broadly shared by market analysts. According to Nolan Wapenaar, head of fixed income at Anchor Capital, South Africa could still see around three additional interest rate cuts over the next 18 months if economic conditions evolve as expected.
What The SARB Model Is Signalling
The SARB’s Quarterly Projection Model continues to point towards gradual rate reductions as inflation converges towards the midpoint of the target range.
Under the model’s current assumptions:
- Monetary policy shifts from slightly restrictive to neutral by 2027
- Three cuts of 25 basis points each are projected
- These reductions could occur between now and mid-2027
A neutral monetary policy stance is designed to neither stimulate nor restrain economic growth, helping keep inflation stable over time.
However, policymakers have emphasised that decisions will remain data-dependent and assessed on a meeting-by-meeting basis.
Inflation Risks Still In Play
Despite the improving outlook, several inflationary risks remain firmly on the radar.
Services and food inflation are both currently running above 4%. In the case of food prices, pressures have been exacerbated by the recent foot-and-mouth disease outbreak, which has disrupted supply chains.
Electricity costs are another major concern. Errors by the National Energy Regulator of South Africa could result in a revenue shortfall of approximately R76 billion. This gap is widely expected to be recovered from consumers through higher tariffs.
Recent Inflation Performance
South Africa’s annual inflation rate averaged 3.2% in 2025, marking the lowest reading in 21 years. This outcome has strengthened confidence that the inflation environment is far more contained than in previous cycles.
Inflation Snapshot
| Indicator | Latest Reading |
|---|---|
| Headline CPI (Dec 2025) | 3.6% |
| Average Inflation 2025 | 3.2% |
| SARB Target Midpoint | 4.5% |
| Repo Rate | 6.75% |
| Prime Lending Rate | 10.25% |
March Meeting In Focus
Assuming there are no major domestic or global shocks, analysts believe the SARB will want to see inflation continue to move in line with projections before delivering a rate cut, potentially as early as the MPC’s March meeting.
Further support for this view comes from Investec economist Lara Hodes, who has noted a clear easing in inflation expectations.
A stronger rand, helped by a softer US dollar and rising precious metals prices, has contributed to a lower near-term inflation forecast. The SARB’s outlook for 2026 inflation has already been revised down to 3.3% from 3.5%.
However, upside risks remain, particularly from elevated electricity prices.
Inflation Expectations Are Improving
Additional evidence of easing inflation pressure comes from the latest survey by the Bureau of Economic Research. The fourth-quarter 2025 results showed a marked decline in average inflation expectations across three key professional groups.
Housing And Consumer Impact
From a consumer and housing market perspective, further rate cuts would offer meaningful relief. Bradd Bendall, national sales head at BetterBond, expects additional cuts later in the year.
With inflation staying within one percentage point of the Reserve Bank’s 3% target and the rand holding firm against major currencies, conditions remain supportive for a reduction in the prime lending rate in the coming months.
Even a 25 basis point cut can significantly improve affordability for highly leveraged households, especially over long-term home loans.
Overall, while interest rates may be on pause for now, the balance of risks suggests that South Africa’s easing cycle is not yet over.
Conclusion
South Africa’s interest rate outlook remains cautiously optimistic, with the SARB opting to pause for now while keeping the door open to further easing. Inflation has moderated to multi-year lows and expectations continue to improve, creating a supportive environment for additional cuts over the medium term. However, persistent risks from food prices, electricity tariffs and broader global uncertainty mean that policymakers are likely to proceed carefully, balancing the need to support economic growth against the imperative of keeping inflation firmly under control.
Fast, uncomplicated, and trustworthy loan comparisons
At Arcadia Finance, you can compare loan offers from multiple lenders with no obligation and free of charge. Get a clear overview of your options and choose the best deal for you.
Fill out our form today to easily compare interest rates from 19 banks and find the right loan for you.
