While the South African Reserve Bank's (Sarb) Monetary Policy Committee (MPC) is expected to reduce the interest rate by at least 25 basis points on Thursday, the rate-cutting cycle is only expected to continue until at least mid-2025.
This is according to Riaan Grobler, head of advisory services at Everest Wealth.
The interest rate is also expected to decrease further in March and May. This will result in a total decline of at least 100 basis points, or perhaps even 125 basis points
“Lesetja Kganyago, governor of the Reserve Bank, will once again tread carefully on Thursday and will not want to say much about further interest rate cuts. Kganyago will reiterate that global economic uncertainties and President Donald Trump's trade policies pose a risk to inflation and that caution should therefore be exercised," Grobler said.
Although inflation stood at 3% in December, it averaged 4.4% for 2024, marking the lowest level in four years and remaining within the South African Reserve Bank's (Sarb) target range of 3% to 6%, indicating potential for further interest rate reductions.
There is always the possibility that the interest rate-cutting cycle will slow down or end quickly.
The United States Federal Reserve’s (Fed) next interest rate decision is on January 29 and is anticipated to halt rate cuts, with the possibility of further cuts in March or May, according to Grobler.
Grobler said: "In December, the Fed delivered a 25-basis-point rate cut – the third consecutive interest rate cut for 2024. It was already clear then that the Fed would start to become more cautious afterwards and eventually announce fewer and lower cuts than previously expected."
Another lowering of the interest rate would be a welcome boost for SA consumers after the festive season while another cut in March could help supplement the disposable income of consumers.
Since November 2021 the interest rate has been on the rise by 475 basis points and has now only been reduced by 50 basis points.
"The interest rate will be reduced further this year but an increasingly cautious approach is being taken and it is clear that interest rates will not return to pre-Covid-19 levels," Grobler said.
"The inflation rate of food, power, fuel and medical is regularly more than double the overall inflation rate. The middle class spends a larger percentage of their income on these items whilst salary increases are mostly below overall inflation. In real terms the middle class is getting poorer and struggling to maintain their standard of living."
IOL Business