Economists expect the South African Reserve Bank to reduce interest rates three additional times before concluding its present easing phase, although there is disagreement about the precise timing of those moves.
Key Takeaways
- Three Additional Cuts Expected: Most economists surveyed anticipate three more 25 basis point reductions, which would bring the benchmark rate down to 6% and mark the end of the current easing cycle.
- Timing Remains Uncertain: While there is agreement on the total magnitude of cuts, banks differ on the schedule, with some expecting completion by September and others projecting easing into early 2027.
- Room For Faster Easing If Inflation Stays Contained: Continued rand strength and sustained disinflation could allow the Reserve Bank to deliver the full 75 basis points of cuts sooner than currently forecast.
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Forecasts Point to Further 75 Basis Points of Easing Amid Diverging Timelines
According to a Bloomberg survey of 14 economists, the majority foresee three further reductions of 25 basis points each, which would lower the benchmark rate to 6%. This projection includes analysts from institutions such as Morgan Stanley, UBS Group AG and BNP Paribas SA, who believe the central bank still has room to ease policy further.
If realised, these reductions would conclude a rate-cutting cycle that commenced in September 2024 and has already delivered cumulative cuts of 1.5 percentage points. The anticipated additional 75 basis points would extend that trajectory through 2026 and potentially into 2027, depending on economic conditions.
Diverging Timelines Among Major Banks
While there is broad agreement on the magnitude of further easing, there is less consensus regarding its pace.
- BNP Paribas expects the final reductions to be completed by September.
- UBS and Morgan Stanley project the cycle could extend into the first quarter of 2027.
- The Reserve Bank’s own forecasting model indicates scope for an additional 75 basis points of easing by 2027.
Standard Bank’s head of South Africa macroeconomic research has indicated that, should current disinflationary trends remain intact, including continued strength in the rand, the full 75 basis points of cuts could be delivered sooner than currently projected.
A 25 basis point cut equals 0.25 percentage points. On a R1 million home loan, a single 25 basis point reduction can lower monthly repayments by several hundred rand, depending on the term and structure of the loan.
Why More Rate Cuts Matter for the Economy
Additional rate reductions would provide support to an economy that has experienced limited growth for more than a decade. Lower borrowing costs typically stimulate household consumption expenditure, which represents roughly two-thirds of South Africa’s gross domestic product.
Cheaper credit can:
- Reduce the cost of home loans and vehicle finance
- Encourage business investment and expansion
- Ease debt servicing burdens for households
Household consumption expenditure consistently accounts for about 60% to 65% of South Africa’s GDP, making interest rate movements particularly influential on overall economic momentum.
Monetary Policy Committee’s Recent Decision
The Reserve Bank’s monetary policy committee opted to keep the benchmark rate unchanged at 6.75% on 29 January. The decision was influenced by ongoing global uncertainty, as well as domestic risks stemming from elevated food and electricity prices.
At the same time, the central bank revised its inflation forecast lower, now expecting headline inflation to average 3.3%. This figure sits closer to its recently adopted 3% target, which signals a more ambitious commitment to price stability.
Investors do not just track currency moves they also eye monetary policy signals. In Rand Rebounds Sharply as Global Sentiment Improves we explore how shifts in risk aversion and global credit outlook helped the rand regain ground, complementing expectations around future interest rate cuts.
Factors Supporting Lower Inflation
Several developments have contributed to the improved inflation outlook.
- The rand has appreciated by more than 3% this year as the US dollar weakened.
- Key export commodities such as gold and platinum have rallied strongly.
- Oil prices have averaged approximately $66 per barrel, near the central bank’s 2026 assumption.
A firmer currency helps contain imported inflation, particularly in fuel and food prices, which are sensitive to exchange rate movements. Strong commodity prices also support government revenue and the current account balance.
Policy Approach Under the New 3% Target
BNP Paribas analysts have maintained that a majority within the Monetary Policy Committee appears to favour a gradual and patient recalibration of policy under the new 3% inflation framework. Their base case anticipates a quarterly pace of 25 basis point cuts during 2026, with a terminal rate of 6% achieved by the end of the third quarter.
This cautious approach reflects the central bank’s sensitivity to both external risks and domestic price pressures, even in an environment where inflation expectations are easing.
Inflation expectations play a crucial role in rate decisions. If businesses and households believe inflation will remain low, it reduces the need for aggressive monetary tightening.
Recent data support the case for monetary easing. In Inflation Hits Lowest Point in Nearly Five Years, we discuss how slowing price growth is giving policymakers more room to reduce interest rates and stimulate the economy.
Outlier Forecasts Signal Deeper Easing
Not all institutions align with the consensus view. Goldman Sachs Group and Nedbank Group stand out for projecting significantly more aggressive rate reductions.
| Institution | Forecast Number Of 25bp Cuts | Terminal Rate | Expected Timing |
|---|---|---|---|
| Consensus View | 3 | 6% | 2026 to early 2027 |
| Nedbank Group | 4 | Below 6% | Not specified |
| Goldman Sachs | 7 | 5% | Early 2028 |
Goldman Sachs has adopted a particularly dovish stance, forecasting alternating rate cuts at successive Monetary Policy Committee meetings until a terminal rate of 5% is reached in early 2028. This outlook is grounded in expectations of persistently subdued inflation.
Such projections suggest that, should inflation continue to undershoot expectations and global conditions remain supportive, South Africa could experience a more prolonged and deeper easing cycle than currently anticipated by most forecasters.
The repo rate directly influences the prime lending rate, which banks use as a reference for most loans. Changes in the repo rate are typically passed through to consumers within days.
Conclusion
The prevailing view among economists is that South Africa’s interest rate cutting cycle is not yet complete, with a further 75 basis points of easing widely anticipated, even if opinions differ on the timing. A supportive inflation backdrop, a firmer rand and relatively contained oil prices provide room for additional reductions, while the Reserve Bank’s cautious stance under its new 3% inflation target suggests a measured pace. If delivered, these cuts could offer meaningful relief to households and businesses, while helping to reinforce a gradual and more sustainable economic recovery.
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