Hawkish SARB Stance and Global Uncertainty Could Limit Repo Rate Cuts in 2025
The South African Reserve Bank (SARB) has delivered its latest monetary policy update, cutting the repo rate by 25 basis points. However, economists believe the path forward offers limited relief, with only one more rate cut expected in 2025. The cautious stance is largely attributed to global economic uncertainty, exacerbated by US President Donald Trump’s trade policies, which have created ripples in financial markets worldwide.
Hawkish SARB and Global Risks
Jee-A van der Linde, senior economist at Oxford Economics Africa, noted that while the 25 basis points repo rate cut was anticipated, SARB Governor Lesetja Kganyago struck a hawkish tone. Four members of the Monetary Policy Committee (MPC) supported the cut, but two voted to keep rates steady. Kganyago emphasized the risks posed by an uncertain global environment, signalling fewer rate cuts in the near future.
Van der Linde explains, “Our revised policy rate forecast assumes just one more 25 basis points repo rate cut for 2025. It is increasingly plausible that the SARB will hold rates at its March meeting.”
]The SARB’s decision is also influenced by minimal adjustments to its GDP growth forecasts. While the 2025 growth estimate rose slightly to 1.8%, the 2024 outlook was downgraded to 0.7%, reflecting South Africa’s sluggish economic recovery.
Inflation Trends Support Modest Easing
Encouragingly, inflation appears to be easing, providing a slight window for further rate reductions. Prof. Raymond Parsons of NWU Business School highlighted that inflation is now expected to remain well within SARB’s 3%-6% target range.
“With inflation winding down, this creates space for further cuts, albeit modest ones,” Parsons said. However, he added that future cuts would remain data-dependent and cautious, especially given South Africa’s slow economic recovery.
Global and Domestic Challenges
Economists also point to the influence of Trump’s trade policies on global markets, which could have a ripple effect on South Africa. Mamello Matikinca-Ngwenya, chief economist at FNB, explained, “Global trade wars could fuel inflation, strengthen the dollar, and prompt tighter Federal Reserve policy, leaving emerging markets like South Africa exposed.”
Frank Blackmore, lead economist at KPMG South Africa, echoed these sentiments, noting that both domestic and international factors—such as public sector wage increases and trade-related inflation risks—add to the uncertainty.
What This Means for Borrowers
For consumers and businesses, the repo rate cut offers modest relief. Dr. Andrew Golding, CEO of Pam Golding Property, emphasized its significance for home buyers and mortgage holders. “The rate cut is good news for those with existing loans, but the shallow trajectory of future cuts reflects heightened uncertainty,” Golding said.
FNB CEO Harry Kellan anticipates another 25 basis points cut at each of the next three MPC meetings, potentially lowering the repo rate to 7% by mid-2025. However, other economists suggest a more cautious timeline, with the next cut likely delayed to mid-year.
Final Thoughts
While today’s repo rate cut offers some optimism, the SARB’s cautious outlook reflects the challenging global and domestic landscape. With one more rate cut expected in 2025, borrowers should prepare for a slow and uncertain easing cycle. The MPC remains vigilant, balancing inflation risks and economic growth concerns against a backdrop of global volatility.
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