Will the SARB cut interest rates? Experts weigh in on the 25 basis point prediction

Debt experts and economists believe that an interest rate cut of 25 basis points is likely when the Monetary Policy Committee (MPC) meets on Thursday.

This follows Statistics South Africa announcement last week that CPI inflation edged up slightly from 2.7 % in March 2.7% to 2.8% in April 

Reza Ismail, the head of bonds at Prescient Investment Management, said that he believes there will be an interest rate cut on Thursday. “The observed 3-month Johannesburg Interbank Average Rate (JIBAR) of 7.45% and the 1x4 FRA (Forward Rate Agreement) at 7.26% suggest that markets are currently pricing in a modest easing bias. This reflects a forward rate expectation approximately 20 basis points below the current 3-month interbank rate, implying a probability-weighted scenario of a 25 basis point repo rate cut at the May 29th MPC meeting."

Ismail added that the term structure of FRA rates from 1x4 to 21x24 remains anchored within the 7% range, indicating expectations of modest further easing over the medium term, but not a sustained or aggressive cutting cycle.

“This market pricing is consistent with the SARB’s March 2025 communication, which assessed the real repo rate at around 3.5%, proximate to the Bank’s estimated neutral rate of 3.0%, and stated that policy was now “near neutra”. The Quarterly Projection Model (QPM) path continues to imply a gradual and conditional easing trajectory - contingent on inflation remaining anchored near the midpoint and downside risks to growth not materialising in a disorderly fashion.”

Casey Sprake, an economist at Anchor Capital, said  South Africa’s headline consumer inflation edged slightly higher in April, rising to 2.8% year-on-year from 2.7% in March. The latest inflation data strengthens the case for monetary easing.

“With core inflation easing, wage growth muted, and consumer demand soft, real interest rates remain in restrictive territory. This means that current monetary policy is still exerting a significant dampening effect on the economy. As such, we expect the South African Reserve Bank (SARB) to cut the repo rate by 25 basis points at its upcoming Monetary Policy Committee (MPC) meeting on 29 May. The likelihood of a third rate cut later in 2025 remains evenly balanced at this stage,” Sprake said,

Benay Sager, the executive head of DebtBusters, said believes all the indicators are aligned in the best way: international petrol prices and oil prices are holding out, the exchange rate is in South Africa's favour, and the CPI has been low. “We believe that this is the perfect time for a rate cut; however, we fear that what’s going to happen is that the Reserve Bank will hold the rates steady because of uncertainty in the global environment. It will be very unfortunate for consumers if there isn’t a rate cut.”

Sager added that this would be good for consumers, particularly those who are paying for assets like financed vehicles and homes. “An interest rate cut would also be a good stimulant for the economy and would provide much-needed relief for spending. It might not be good for the lending environment, but it would be good for the consumer environment.”

Neil Roets, the CEO of Debt Rescue, said the SARB could possibly keep interest rates unchanged at this week’s MPC meeting. “The door to a 25 basis point cut is now more open than before -  especially with inflation falling to just 2.8%, well below the target range of 3 - 6%. The environment is becoming more favourable for rate relief. The reality on the ground is far more sobering. A 25bps cut would result in a saving of just R254 per month on a R1.5 million bond - and only around R65 per month on a R500,000 vehicle loan.”

Professor Raymond Parsons, a North-West University Business School economist, said the current business cycle in SA suggests there is now a strong case for the MPC to resume its interest rate-easing cycle,  by another 25 basis points. “This will not only be good for business & consumer confidence but, more importantly, there is space now to do so.”

Visit: https://businessreport.co.za/

BUSINESS REPORT