All eyes will be on the South African Reserve Bank (SARB) this week as it prepares to announce its interest rate decision, a move that could have wide-ranging implications for the country’s economy.

Following a series of cuts, economists are split on whether the Reserve Bank will continue to ease policy or take a more cautious approach.

Inflation remains a key focus. February’s inflation numbers, set to be released on Wednesday, are expected to rise slightly from 3.2% to around 3.7%, largely driven by an increase in medical aid premiums.

Despite this uptick, inflation is still comfortably within the Reserve Bank’s target range, leading many economists to suggest that the SARB may hold rates steady at 7.5%.

Nedbank economists believe that the domestic inflation picture supports a pause in rate cuts. While there was a slight increase in inflation in January, it remains well below the SARB’s 4.5% target.

Furthermore, core inflation—excluding volatile items like food and fuel—remains steady, suggesting that underlying price pressures are contained.

However, there are concerns that could tip the scales towards a rate hold. Rising electricity costs, after Eskom’s recent tariff hike, remain a major risk. Although the power price increases for the next few years were lower than expected, they still pose a potential inflationary threat.

The National Energy Regulator granted Eskom a 12.74% increase for 2025, but curbed increases for 2026 and 2027 to 5.36% and 6.19%, respectively, Nedbank said.

On top of that, global risks such as the ongoing trade tensions between the US and China could disrupt supply chains and further drive up inflation.

Some economists, like Raymond Parsons from North-West University, think the SARB may choose to take a “wait-and-see” approach, holding rates steady for now as it monitors global and domestic developments.

The global landscape is too uncertain to take bold action, Parsons explained, noting that a cautious stance would allow the bank to react to emerging risks before committing to any significant changes.

Lisette IJssel de Schepper of the Bureau for Economic Research, said that the risks to inflation, including VAT hikes and global instability, may prompt the Bank to hold rates unchanged.

Investec chief economist, Annabel Bishop, suggested that the SARB is likely to take a cautious approach. The proposed VAT increase, coupled with above-inflation wage agreements, will likely prompt the Bank to remain wary, as these factors present upside risks to the inflation outlook, she said.

Investec forecasts two interest rate cuts in 2024—one in July and another in November, each by 25 basis points.

A Business Day survey of eight leading economists revealed a 50/50 split on whether the central bank will exercise extreme caution due to global and domestic risks and hold rates steady at 7.50%, or cut by 25 basis points.

There are calls for more aggressive cuts, especially in light of lower-than-expected inflation and the potential for reduced fuel prices.

Samuel Seeff, chairman of Seeff Property Group, argues that a bold interest rate cut of 50 basis points could stimulate growth, particularly in the property market, which has been sluggish.

Seeff believes a larger rate cut—by 50 basis points—could help stimulate economic activity and encourage spending in the property market.

“The gap between inflation and the interest rate is still too high, and the interest rate needs to be brought down further which would further stimulate and increase activity in the property market, but most importantly, would be a crucial incentive to stimulate economic growth, and with that job creation.”

The prime interest rate at 11% is still a full 100bps higher compared to the pre-Covid rate in January 2020 when it was 10%, and brought down to 9.75% at end of January 2020, and subsequently down to 7%, Seeff said. Comparatively, inflation is now down to 3.2% while it was at around 4.5% in January 2020.

“The need for a lower interest rate has become an economic imperative and there is a golden opportunity right now. Seeff says while a 25bps cut would certainly be welcomed, it is simply not enough. A bold cut of at least 50bps is needed,” he said.

On the other hand, the prospect of VAT increases, proposed in the latest budget, is a looming concern that could complicate matters for the SARB. If inflation picks up as a result of these tax hikes, the Bank might hold off on further cuts, or even raise rates, to curb inflationary pressures.