S&P Global Ratings has revised its policy rate forecasts for nine key emerging markets, including South Africa, following a recent change in its policy rate forecast for the US.
Across those nine emerging markets—Brazil, Chile, Colombia, Hungary, Mexico, Peru, Saudi Arabia, South Africa, and Türkiye—S&P Global Ratings noted that the median shift in its rate forecasts is an increase of 50 basis points.
For South Africa, S&P is forecasting one more 25 basis point cut, from 7.50% to 7.25% per annum in 2025, with a further decline to 6.50% per annum in 2026.
“The interest rate differential between emerging markets and the US is a key driver of capital flows, and we now expect just one 25-basis point rate cut from the Federal Reserve this year, compared to three 25-basis point cuts in our previous forecast,” the ratings firm stated.
Capital flows influence exchange rates and, consequently, both observed and expected inflation.
“Central banks in many key emerging markets have been lowering their policy rates for over a year. We now expect these central banks to be cautious about cutting rates further, in order to prevent a rapid narrowing of their countries’ interest rate differentials with the US.”
The SARB’s Monetary Policy Committee (MPC) cut the benchmark repo rate by 25 basis points in January for the third consecutive meeting, following the end of the rate hike cycle that began in November 2023.
S&P Global Ratings considers the US administration’s policy implementation and potential responses—particularly concerning tariffs—to be highly unpredictable. This uncertainty could significantly impact global economies, supply chains, and credit conditions.
“As a result, our baseline forecasts carry a significant amount of uncertainty. As situations evolve, we will assess the macro and credit materiality of potential and actual policy shifts and reassess our guidance accordingly,” the ratings firm said.
Economists are divided on South Africa’s rate outlook. Bank of America (BofA) predicts a single 25-basis point repo rate cut for South Africa this year. BofA also forecasts inflation to average 4.3% in 2025.
BofA’s chief investment strategist for South Africa, John Morris, conducted a survey of 18 fund managers between January 10 and 16, 2025. The survey found that 83% of managers expect the economy to strengthen slightly over the next year.
BofA anticipates a rate hike at the end of 2025 if inflation rises above the target.
Vanessa Murray, divisional executive for Property Finance at Nedbank CIB, forecasts two cuts in 2025.
Annabel Bishop, chief economist at Investec, anticipates that the SARB will reduce interest rates twice this year, although South Africans may have to wait a while before seeing any relief.
Investec expects the MPC to delay the next rate cut until mid-year, with the first 25-basis point reduction anticipated in July, followed by another in November.
Meanwhile, FNB forecasts a total rate reduction of 50 basis points, bringing the repo rate to 7% by the end of 2025, at which point monetary policy is expected to have a more neutral effect on economic activity.
“What’s informing this prediction? Perhaps not the moderate rise in inflation, as this figure is still forecast to stay within its target range, according to SARB Governor Lesetja Kganyago. After falling below 3% towards the end of last year, it is expected to remain around 4.5% in the medium term,” said researchers at PayProp.
“More importantly, the latest Monetary Policy Committee statement warns of a more challenging global environment. Rising tariffs on global trade—or the possibility of a full-blown trade war—could push inflation up, forcing SARB to raise interest rates in response.
“And if the US Federal Reserve raises rates to control its own domestic inflation (a potential outcome of looming trade wars), that could also prompt central banks elsewhere to follow suit.”
They added that there are reasons to believe that SARB could become more aggressive in targeting inflation. Currently, the bank aims to keep inflation between 3% and 6%, but it has been considering adjusting this range to 2% to 5%.
Such a shift would likely mean keeping interest rates higher for longer. Analysts at PWC suggest that more aggressive inflation targeting could be implemented as early as this year.
According to the Seeff Property Group, a person with a R1 million bond and a 20-year repayment period will save R171 per month—about 1.7% of their R10,322 monthly payment—following the most recent 0.25% rate cut.
