A growing number of economists are now altering their projections for South Africa’s interest rate trajectory, moving towards the expectation of an extended holding pattern. They anticipate that the South African Reserve Bank (SARB) will adopt a highly cautious approach to any monetary policy changes going forward. This shift reflects a more defensive stance by financial experts, who are increasingly concerned about emerging global shocks and their unpredictable effects on local markets.
Key Takeaways
- Long-Term Interest Rate Hold Expected: Economists, including Momentum Investments, anticipate that the South African Reserve Bank will maintain interest rates for at least the next six months, with no cuts likely before November 2025.
- Global and Domestic Risks Driving Caution: Rising global uncertainties, including new US tariffs and concerns about the local effects of a VAT hike, are forcing the SARB into an increasingly defensive and data-dependent approach.
- Forecast Errors Amplify Prudence: Previous miscalculations in inflation and growth projections have made the SARB far more hesitant to adjust policy without overwhelming evidence, reinforcing a strong bias toward holding rates steady.
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Momentum Investments is the latest institution to align with this outlook. The group has indicated that it expects the SARB to maintain the current interest rates for at least six months, using this time to carefully observe the evolving global economic situation before making any further moves. This extended pause is intended to provide a buffer against external pressures while domestic inflation and growth metrics stabilise.
Interest Rate Cuts Unlikely in the Short Term
This emerging consensus suggests that South Africans should not expect any interest rate cuts during the next three Monetary Policy Committee (MPC) meetings. At a minimum, there will likely be no adjustments before the end of September 2025. Households and businesses hoping for a reprieve from tight financial conditions may need to brace themselves for a longer period of elevated borrowing costs.
The MPC is scheduled to convene for its next policy decision meeting in May 2025. According to Momentum’s expectations, a further decision to hold rates steady is probable, with the same approach likely to extend through the committee’s subsequent meetings in July and September. Policy inertia during this period could deepen concerns about slow economic momentum and stagnant consumer spending.
Whether market conditions will stabilise sufficiently by the end of 2025 to warrant a policy shift remains uncertain. At present, the possibility of an interest rate change may only arise during the final MPC meeting for the year, scheduled for November, and even then, it remains far from guaranteed. By then, global trade tensions, geopolitical risks, and South Africa’s own fiscal vulnerabilities could still present significant headwinds.
Significant Departure From Previous Projections
This cautious stance represents a significant departure from the earlier forecast at the beginning of 2025, when a more aggressive cutting cycle was anticipated. Initial expectations were that interest rates would be reduced by between 50 and 75 basis points over the course of the year. This optimism was underpinned by earlier signs of cooling inflation and an expected rebound in household consumption that has yet to fully materialise.
By the end of 2024, a broader consensus among economists pointed to a potential 125 to 150 basis points reduction in the policy rate, suggesting ample room for easing monetary conditions. The downgrade of these expectations now illustrates a profound recalibration of economic models in response to real-world instability.
Between October 2024 and March 2025, the SARB implemented interest rate cuts totalling 75 basis points, which saw the policy rate drop to 7.5%. These cuts, initially welcomed by borrowers, have proven insufficient to stimulate stronger growth in a climate riddled with persistent uncertainty.
However, this trend of easing began to falter. In the January and March MPC meetings, voting among members increasingly leaned towards maintaining the status quo, resulting in no further rate cuts by March 2025.
Quarterly Projections and Data Dependence
Currently, the SARB’s internal Quarterly Projection Model indicates the potential for an additional 25-basis point cut during the second quarter of 2025. This move would adjust the policy rate to the estimated neutral level of 7.25%. Even so, analysts warn that this modest adjustment may not be enough to spark meaningful economic momentum unless accompanied by broader structural reforms.
Nevertheless, this forecast remains heavily reliant on incoming data, particularly given the heightened levels of global economic uncertainty at present. The prevailing market sentiment suggests that the SARB will most likely opt for continued caution and maintain rates unchanged unless circumstances shift dramatically.
With external risks such as protectionist trade measures and volatile commodity prices looming large, the margin for error is razor-thin.
This data-dependent approach is being echoed by many economists, with the most cautious among them predicting that no further interest rate reductions will occur for the remainder of the year. Such a scenario would leave indebted consumers and struggling businesses facing higher financing costs well into 2026.
External Factors Weigh on Outlook
Sanisha Packirisamy, an economist at Momentum Investments, has noted that heightened risks from abroad, particularly rising tariff tensions initiated by the United States, have added further complexity to the SARB’s decision-making. The deteriorating global trade environment has introduced a fresh layer of volatility that monetary policymakers must now navigate with extreme prudence.
The announcement by US President Donald Trump of a blanket 10% tariff, which officially came into force on 5 April, is anticipated to impact the global economy from the middle of 2025 onwards. This sweeping measure could choke global supply chains, curtail investment flows, and further dampen already fragile global growth prospects.
Moreover, a potentially more damaging tariff—a 30% “reciprocal” tariff specifically targeting South Africa—was also announced. Although its implementation has been delayed for 90 days, should it come into effect thereafter, it could have far-reaching consequences for South Africa’s economy in the latter half of the year. Sectors such as mining, manufacturing, and agriculture could suffer severe export losses, exacerbating local unemployment and reducing government revenues.
Why the Reserve Bank Is Expected to Hold Rates
Reviewing the SARB’s most recent monetary policy discussions, Packirisamy observed that the central bank faces increasing difficulty in finding a stable footing amid volatile global and local conditions and their resulting effects on inflation dynamics. Every new data point seems to bring fresh challenges, forcing policymakers into an increasingly defensive posture.
Domestically, inflation is expected to bottom out at 3.6% during 2025, before beginning a slow upward trend towards the SARB’s midpoint target of 4.5% over the forecast horizon. Yet underlying risks—particularly from administered prices and potential currency depreciation—could quickly undermine this relatively benign outlook.
Under normal circumstances, such an inflation trajectory would typically justify further monetary easing. However, concerns regarding possible second-round inflationary effects following the recent VAT increase are causing the SARB to proceed with greater caution. There is a genuine fear that any premature loosening of policy could ignite an inflationary spiral that would be even harder to contain.
This cautious approach is further justified by the SARB’s performance in 2024, when its forecasts proved notably inaccurate, even before the latest VAT hikes and US tariffs complicated matters further. Such forecasting missteps have injected a new level of humility into the Reserve Bank’s operations, compelling it to rely even more heavily on real-time indicators rather than assumptions.
SARB’s Forecasting Challenges in 2024
In terms of inflation, the SARB’s 2024 forecast had initially predicted an average inflation rate of 5.0%. However, the actual outcome turned out more positive, with inflation averaging 4.4% over the year.
The primary reasons for this forecasting error were a stronger-than-anticipated rand, following the political developments around the formation of the Government of National Unity, and lower international oil prices, both of which alleviated inflationary pressures. These factors, however, are unlikely to be reliably replicated in 2025, posing fresh challenges for stability.
Moreover, unit labour costs rose at a slower pace than initially projected, and the domestic output gap—reflecting the economy’s unused capacity—was wider than anticipated. Both factors helped ease price pressures further. Nonetheless, with the labour market showing signs of tightness, wage inflation could re-emerge as a concern later in the year.
On the economic growth front, the SARB significantly overestimated South Africa’s performance. It projected a growth rate of 1.2% for 2024, but the economy only managed to achieve a growth rate of 0.6%.
The underperformance was primarily attributable to volatility within the agricultural sector and unexpected weaknesses across several other key sectors of the economy.
On the expenditure side, the SARB had consistently overestimated private sector investment levels and changes in inventories, while underestimating net export contributions, largely because of weaker-than-expected import figures.
Acknowledging Forecasting Limitations
Packirisamy emphasised that such forecasting errors were not exclusive to the SARB. Similar inaccuracies were found across multiple institutions, including the Reuters consensus, highlighting the inherent difficulty of economic forecasting in a highly unstable global and domestic environment.
Nonetheless, these repeated errors underline why the SARB is likely to exercise even greater prudence when making monetary policy decisions in 2025, given the exceptional levels of unpredictability currently facing policymakers.
Conclusion
South Africa’s monetary policy outlook for 2025 has undergone a profound shift, with economists now widely expecting an extended period of steady interest rates as the South African Reserve Bank confronts mounting global and domestic challenges. Earlier optimism for significant rate cuts has faded in the face of persistent economic unpredictability, trade tensions, and lingering inflationary risks. With forecast errors from 2024 fresh in memory, the SARB is likely to prioritise caution over boldness, choosing to hold its position until the economic environment becomes less volatile. For households and businesses alike, this signals a more protracted period of tight financial conditions—and a reminder that stability may, for now, come at the cost of growth.
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