Joy for homeowners in South Africa is coming

While the South African Reserve Bank (SARB) opted to hold interest rates this week, this was not unexpected and does not by any means indicate that rate cuts have ended in the country.

According to Investec Chief Economist Annabel Bishop, the country is still very much in a cutting cycle, and if conditions continue to improve, the repo rate could drop by 200 basis points over the next few years.

The SARB’s Monetary Policy Committee voted to hold interest rates on Thursday (29 January), leaving the repo rate at 6.75% and the prime lending rate at 10.25%.

The decision was not unanimous, with four members of the MPC voting to hold and two voting to cut by 25 basis points.

Ahead of the announcement, economists and markets were divided, but most bets were on a hold, making the outcome unsurprising.

The same forecasts envision 50 basis points of cuts in the current cycle, split into two staggered 25 bp cuts in 2026.

However, Bishop noted that the MPC’s accompanying documents indicate that there may be as many as three 25bp cuts left in the current cycle, totalling 75bp, with potentially more to come.

“Currently, we expect the repo rate to reach 5.75% by the end of 2027, while the MPC’s forecast released yesterday has it at 6.00% for this point,” Bishop said.

“For 2028, we believe the repo rate would drop to 5.50% if CPI inflation remains very close to 3.0% y/y.”

This would put 125 basis points of cuts in the next three years, rising to 200 basis points by the end of 2030, should headline inflation consistently average 3.0% y/y over the five-year forecast period.



“A lower neutral real interest rate is influenced by a lower risk premium for South Africa, which would then be expected to strengthen the exchange rate, consequently lower inflation, and so lower the inflation outlook sustainably, resulting in interest rate cuts,” she said.