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South Africa expected to cut borrowing costs

Staff Writer
Estimated reading time: 2 minutes

Recent signs of recovery from key infrastructure sectors like Eskom and Transnet, and an improvement in inflation figures, brings cause for hope for South Africa’s economic climate in 2025.

Inflation rates are falling, and many expect that South Africa could see further interest rate cuts this year. Add to that the possibility of a quicker exit from the grey list and a recovering property market, and it’s clear that the outlook for 2025 is far brighter than it has been in recent years.

The South African Reserve Bank is expected to cut borrowing costs by 25 basis points on Thursday, despite concerns that uncertainty around US monetary and trade policies could limit future rate cuts.

Economists in a Bloomberg survey predict Governor Lesetja Kganyago will lower the benchmark interest rate to 7.5% at a press briefing near Johannesburg. Most anticipate the six-member monetary policy committee will unanimously support this decision, following the same reduction as in previous meetings.

Old Mutual’s chief economist Johann Els attributes the rate cut to South Africa’s low inflation and minimal local inflationary pressures. Annual inflation has stayed below the central bank’s 4.5% target range since August, reaching just 3% last month.

In an interview with Moneyweb, Adriaan Pask, chief investment officer at PSG Wealth, noted recent positive developments in the country, particularly at Eskom and Transnet, as signs that the country is moving in the right direction.

While not yet perfect, these improvements are tangible, and is starting to unlock value in the market. As investor sentiment improves, capital flows into South African markets have begun to increase, which has had an immediate impact on valuations.

Pask stressed that the recovery is still fragile. There remain significant risks both globally and locally. The US fiscal system, particularly its high debt levels and the potential for rising borrowing costs are a concern, and while Wall Street has been strong, there are worries about the concentration risk within the ‘Magnificent Seven’ companies and the broader implications of a rising US debt ceiling.

Pask said that high interest rates and the growing cost of debt are starting to affect corporates, consumers, and the government,” said Pask.

Additionally, Pask highlighted China’s uncertain outlook. While the country’s valuation might present opportunities, he pointed to the fragilities in its real estate market and broader economic system as major risks.

In Europe, Pask believes there is potential for gradual improvement. However, investors are still cautious, focusing more on perceived risks than on opportunities that could come with lower valuations.

For South Africa, Pask said that if inflation continues to drop, the country’s GDP numbers could surprise on the upside, and if execution on key plans is successful, South Africa could enter a new phase of sustained growth.

The country, he said, is still in a recovery phase. He advised investors to continue diversifying their portfolios, as this strategy has proven to be crucial in navigating both local and global uncertainties.

He also advised investors to not fear market volatility but rather view it as an opportunity to buy quality assets at lower prices.

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