JOHANNESBURG, 20 March 2025 — South African consumers and businesses hoping for a reprieve from high borrowing costs were left disappointed on Thursday.
This as the South African Reserve Bank (SARB) held interest rates steady at 7.5%, (see full report here) prioritising global trade volatility and domestic fiscal gridlock over calls for economic relief.
The decision, announced by Governor Lesetja Kganyago at a briefing north of Johannesburg on Thursday (March 20, 2025), aligns with market expectations. Most economists polled by Bloomberg and Reuters earlier, had predicted a hold, given persistent risks stemming from United States President Donald Trump’s aggressive trade policies, a deadlocked national budget, and concerns over South Africa’s economic trajectory.
Rand slides following interest rate decision
The South African rand weakened 0.5%, trading at 18.22 per dollar after the announcement. Global currency markets were already volatile after the US Federal Reserve also opted to hold its interest rates steady while lowering its growth forecast.
“Some policy adjustments by major central banks are still expected this year, but rates are likely to remain high for longer, given new inflation risks,” said Governor Kganyago.
Global and domestic pressures weigh on SARB decision
The decision was a close call, with four members of the Monetary Policy Committee (MPC) favouring a hold and two advocating for a further rate cut. Inflation, currently at 3.2%, remains well within SARB’s 3%-6% target range. However, broader global trends appear to have influenced the cautious approach.
“There are strong reasons for the MPC to reduce borrowing costs, including a struggling economy and steady inflation,” said Sanlam Investment economist Patrick Buthelezi. However, he warned that “global factors will weigh more” and that policymakers may wait for the “dust to settle.”
One of the primary concerns is the impact of Trump’s trade tariffs, which have already caused long-term US inflation expectations to surge at their fastest pace since 1993. If the Federal Reserve reacts with a rate hike, it could weaken the South African rand further, forcing SARB to respond in kind.
“The SARB, unfortunately, will have to respond, because the currency would weaken in that environment,” Buthelezi added.
Budget uncertainty and US relations loom large
Another major consideration for the central bank is South Africa’s strained relations with the US. Some analysts fear that deteriorating ties could jeopardise South Africa’s preferential trade status under the African Growth and Opportunity Act (AGOA), which covers approximately $3.6 billion in exports to America.
This geopolitical uncertainty has already prompted institutional investors such as Franklin Resources, JPMorgan Chase, and Wells Fargo to offload South African bonds, resulting in capital outflows at a rate unseen since last year’s national elections.
Additionally, the proposed 0.5 percentage point VAT hike by Finance Minister Enoch Godongwana has added another layer of complexity. The increase, set to take effect in May, remains highly contentious and faces political hurdles in Parliament.
“While we see a strong case for further monetary easing on the basis of dovish cyclical dynamics, we expect that budget uncertainty will prompt the SARB to keep rates unchanged,” said Goldman Sachs economist Andrew Matheny.
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Market reactions and eleconomic outlook
Following SARB’s decision, South Africa’s Top-40 stock index dipped 0.8%, reflecting investor caution. Meanwhile, the benchmark 2030 government bond strengthened slightly, with yields falling 3.5 basis points to 9.05%.
The Bureau for Economic Research (BER) recently revised (March 20) inflation forecast for 2025 downward from 4.5% to 4.3%, signaling expectations of continued stability. However, economic growth projections paint a more tepid picture. South Africa’s GDP is expected to grow by 1.2% in 2025, down from the 1.5% previously anticipated. Growth is projected to inch up to 1.4% by 2026.
Despite inflation remaining low, different economic groups hold varying outlooks. Business leaders expect inflation to average 4.6% in 2025, while trade union officials foresee a sharper increase to 5.0% by 2027. Meanwhile, households have adjusted their inflation expectations downward to 5.7%, a significant drop from the 6.6% recorded last quarter.
Looking ahead: Uncertainty reigns
While SARB has opted for stability over stimulus, the road ahead remains uncertain. The combination of Trump’s trade tariffs, South Africa’s budget standoff, and global monetary policy shifts will likely keep the country’s economic trajectory volatile.
FNB CEO Harry Kellan, in a statement to NOWinSA, cautioned that while the central bank’s rate hold offers short-term stability, households must brace for ongoing volatility. “Under these conditions, consumers should manage their finances with caution when considering large expenses,” Kellan said, adding:
“We expect that the Reserve Bank will continue to find a balance between managing inflation expectations while supporting the broader South African economy. For consumers, emergency savings and longer-term investments should be top of mind.”
For now, businesses and consumers must navigate an environment of cautious optimism, awaiting clearer signals from both local fiscal policies and global economic trends.
