The pendulum keeps swinging for interest rate expectations in South Africa, with economists now seeing a greater chance for the South African Reserve Bank (SARB) to cut interest rates in 2025. However, the baseline expectation remains that rates will be held at the May meeting, as global uncertainty persists. The tone around the interest rate cutting cycle has shifted several times this year. The cycle started with the SARB cutting rates by 25 basis points in September 2024, followed by another 25 basis point cut in November and January 2025.
2025 started out with expectations of a continued cutting path through to May—another 50 basis points in total—however, this was paused with a vote to hold rates in March. This followed a seismic shift in global politics as US President Donald Trump signed a flurry of executive orders after taking office in late January. This caused global uncertainty, pushing expectations for further cuts to the middle or end of the year. Then the US launched a global tariff and trade war in April. After this, key central banks, including the SARB, signalled that any further interest rate cuts would have to wait until the dust settled—possibly until 2026.
Now a month later, uncertainty still persists in the global market, but economists have noted that the fallout isn’t as bad as expected. Investec chief economist Annabel Bishop said that markets have not nosedived, an indication that investors view Trump’s tariff war as temporary. On top of solid employment data, expectations of US interest rate cuts have now swung into more positive territory with three 25 basis point cuts now expected before the end of the year, she said. Should this become the base view, it will likely feed into local expectations as well.
According to Aluma Capital chief economist Frederick Mitchell, the US Federal Reserve has taken a cautious stance to its rate policy and is likely to hold rates steady at its meeting in May. “The primary concern for the Fed remains inflation, which is subtly rising due to persistent tariff-induced import price increases stemming from the ongoing trade conflict with China,” he said. “These tariffs have increased costs for imported goods, contributing to inflationary pressures above the Fed’s 2% target.” That said, the recent robust employment data suggests a resilient US labour market, supporting calls for rate cuts.
Mitchell noted that South Africa’s economic environment is heavily influenced by external factors, and the SARB will be taking local inflation figures and global events into account. March 2025 inflation figures showed consumer inflation at 2.7% and producer inflation at 0.5%, both comfortably below the SARB’s 3-6% target range. “Despite these stable inflation numbers, demand remains subdued, influenced by high living costs, stagnant wages, and a cautious lending environment,” Mitchell said.
The rand has recently strengthened against the US dollar after crumbling on diplomatic tensions and the suspension of US aid, as well as concerns over South Africa losing trade privileges in the African Growth and Opportunity Act (AGOA). Further positives for South Africa are declining oil prices over the past month and lower import costs, reducing inflation pressures further. Mitchell said that these external conditions may justify a shift towards easing monetary policy. “A rate cut could stimulate borrowing, increase consumer spending and in doing so help to bolster domestic demand without risking an uptick in inflation,” he said.
However, the economists noted that the SARB is likely to proceed cautiously, bearing in mind that geopolitical uncertainties and external shocks could offset the benefits of lower interest rates. Mitchell noted that the clear line that central banks like the Fed and SARB are treading is one of caution as they try to navigate the uncertainties in the market. South Africa could pivot toward rate easing if external conditions remain favourable, the rand remains relatively stable against the dollar, and oil prices keep the downward trajectory.
The SARB’s own modelling shows room for another 25 basis point cut to rates before reaching the ‘neutral’ rate. With the latest shift, this is now seen as back on the cards for 2025, either at the July, September or November meeting.
Meanwhile, the economic landscape is further complicated by South Africa’s greylisting by the Financial Action Task Force (FATF) in February 2023, which has led to rising borrowing costs and a chilling effect on international banking relationships. Since the greylisting, South Africa has seen capital flight and higher-risk premiums. According to the South African Reserve Bank, sovereign borrowing costs have risen by 30 to 40 basis points.
In early 2025, US President Donald Trump publicly stated that a future administration might cut aid to South Africa, citing “chronic financial opacity” and ongoing land expropriation issues. While politically charged, these remarks had economic consequences, as risk analysts and institutional investors took note of the distrust in South Africa’s financial governance, leading to further increases in the cost of capital.
From 2020 to 2023, the Financial Intelligence Centre received more than 7.5 million suspicious transaction reports (STRs), yet fewer than 300 reportedly led to formal investigations or prosecutions. The National Prosecuting Authority lacks a dedicated anti-money-laundering (AML) division, and agencies operate in silos, losing critical leads in jurisdictional grey areas. Even with structures like the beneficial ownership register, the system relies heavily on self-reported data without independent verification.
In response to these challenges, major South African banks have started closing accounts deemed high-risk, including those of crypto firms and politically exposed clients. This market-driven action to avoid reputational contagion from global correspondent banks signals regulatory abdication, undermining public trust and weakening the rule of law.
To restore credibility and protect access to development capital, South Africa urgently needs a centralised financial sanctions authority, a verified beneficial ownership registry, and a specialised AML prosecution unit. Moreover, it requires mandatory AML disclosures at board level and a national coordination task force to improve enforcement and oversight.
As the SARB navigates these turbulent waters, the potential for interest rate cuts remains a glimmer of hope for economic recovery, but only if the right measures are implemented to address underlying governance issues and restore investor confidence.
