As the South African Reserve Bank’s Monetary Policy Committee (MPC) gears up for its meeting on Thursday, 20 March 2025, market watchers expect a potential 25 basis point rate cut amid stabilised domestic inflation and a stable rand, even as global uncertainties continue to cast their shadow.
Old Mutual Group chief economist Johann Els notes that, despite ongoing global risks, local economic indicators support further monetary easing. “The Reserve Bank’s January cut was undertaken amid significant warnings about global risks, including uncertainties around US trade policies and higher inflation. However, since then, many of these risks have materialised, yet the rand remains as stable as it was in January,” Johann noted.
Key domestic data bolsters the case for a rate cut. Recent CPI figures revealed subdued price pressures, with rental and owner’s equivalent rent inflation remaining below forecasts, while lower-than-expected electricity price increases and a forecast petrol price cut have further improved inflation dynamics.
Johann added, “Even though our forecast in January assumed a much higher electricity price increase, the actual figures have come in lower than expected, which, combined with stable oil prices, points to an inflation outlook that is quite acceptable.”
Rate-cut debate
The potential rate cut comes at a time when global conditions are in flux. The Federal Reserve is expected to hold rates steady at its meeting on Wednesday, with market participants anticipating future rate cuts should the US economy continue to weaken.
“This divergence in policy is already having an impact on the rand. Johann explained, “The US dollar has recently weakened, partly due to better growth in the euro area relative to the USA and the prospect of US rate cuts later in the year. This dollar weakness has helped stabilise the rand, reinforcing our case for a further rate cut.”
Despite these favourable domestic conditions, Johann cautioned that the MPC’s decision would not be taken lightly. “We expect a split decision again, with the Reserve Bank likely issuing a hawkish statement on global risks – particularly around US trade policies – even as the stable position of the rand and the softer inflation figures support the move,” he said.
Looking ahead, Johann emphasised that while the upcoming cut might signal the final step in the current easing cycle, there remains a scenario where further cuts could be necessary if the US economy weakens further and additional downside inflation surprises emerge.
“There is a real possibility of further rate cuts down the line, particularly if we see a more pronounced weakening in the US economy that results in a stronger, more stable rand,” he concluded.
As the MPC meeting inches closer, investors and market participants will be keenly watching the Reserve Bank’s balancing act between supporting growth and mitigating external risks. The outcome will not only influence borrowing costs but also set the tone for future monetary policy in an increasingly uncertain global environment.
