More relief for Mzansi as 25bps interest rate cut expected in January

South African consumers can expect some financial relief at the start of 2025 as the South Africa Reserve Bank (Sarb) is anticipated to cut interest rates on January 30, 2025. 

According to chief economist at Investec Annabel Bishop, the Sarb's Monetary Policy Committee (MPC) is expected to cut interest rates by 25 basis points (bps) this month.

"South Africa’s Reserve Bank (Sarb) meets to reconsider its interest rate stance next week, with the decision taking place on Thursday, the 30th, and a 25bps cut in the repo rate expected, but no cut at the March MPC meeting," Bishop said.

Samuel Seeff, chairman of Seeff Property Group, said that Seeff believes the outlook for an interest rate cut is good, and we will probably only see a 25bps cut.

"Although we believe very strongly that the Reserve Bank has been too conservative with its rate cuts and have missed an opportunity to provide more meaningful relief to consumers and the economy," Seeff said. 

"While the 50bps rate cuts during the latter part of last year brought welcome relief, it is not enough, and the interest rate is currently still about 1.50% higher compared to the pre-pandemic period despite the fact that inflation, while marginally up to 3% (from 2.9% in November and 2.8% in October), is still at the bottom of the Reserve Bank’s inflation target range."

While the Sarb cut interest rates by 50bp, the United States Federal Reserve lowered interest rates 100bps in the second half of last year, the ECB (European Central Bank) cut 100bps, and the BoE (Bank of England) cut 75bps.

"On the upside, while we wait for the 4th quarter GDP figures, the news of good retail sales, the currency being fairly stable, and the contained inflation should be ample motivation for the MPC to consider a cut of at least 50bps to kickstart the economy," Seeff said. 

The economy has not grown in real terms in well over a decade while consumers and businesses have had to deal with a high interest rate which is not conducive to growth.

The interest rate is a big driver of the housing market, and due to it staying so high for so long, it has hindered the ability of more first-time home buyers to get into the market.

Seeff said: "Given the flat price growth, especially in main urban areas with high volumes of potential first-time buyers such as Gauteng, there is a real opportunity that a 50bps rate cut can encourage more home buying."

"Broadly speaking, with both the global and local economic outlook improved compared to last year, and if inflation remains contained and there are no economic shocks that could impact either inflation or the currency, then there is good reason to expect that 2025 should be a good year for the property market."

Based on the current state of affairs, Seeff expects at least 75bps to 100bps cut this year, which could be 3 to 4 rate cuts of 25bps based on the Sarb cutting cycle trend.

While Seeff expects more interest rate cuts for the rest of the year, Bishop, on the other hand, does not have the same expectations as Seeff.

Bishop said that the interest rate cut cycle is expected to slow in 2025, after two cuts in quick succession at the end of last year, with Sarb not expected to ease interest rates again until July at least.

"Expectations for interest rate cuts in the US have moderated, from three 25bp drops, to one definite 25bp drop, and currently just under 70% chance of a second for this year," Bishop said.

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