What to expect from the South African Reserve Bank's interest rate decision this week
Image: IOL / AI
The prospects of a rate cut ahead of the SA Reserve Bank's (SARB) Monetary Policy Committee's (MPC) next interest rate decision on July 31, appear positive, but it's not a clear-cut case, economists said on Monday.
'The market currently expects a cut in the key repo rate by 25 basis points — which would be the third reduction this year,' said Thys van Zyl, Chief Executive of Everest Wealth Advisory.
'A lower interest rate would bring welcome relief to consumers.'
He warned that while headline inflation remains relatively low, food price inflation is now at its highest level in over a year, which poses risks to interest rate expectations as well as consumer spending.
Dr Elna Moolman, Standard Bank's group head of macroeconomic research, also believes the current inflation rate supports the case for an imminent interest rate cut, and although she expected inflation to rise over the coming months, it should remain 'reasonably benign'.
However, Van Zyl warned that the central bank may be reluctant to cut rates too aggressively if global food and oil prices continue to trend upwards.
'Earlier this year, it was anticipated that the Reserve Bank could cut interest rates one or two more times in 2025," Van Zyl said.
"Following the January and May reductions totalling 50 basis points, it's increasingly likely that we'll see only one more cut this year – and perhaps not before year-end.'
Uncertainty surrounding the proposed 30% tariffs on South African exports to the US is another factor weighing on the economy, he added, as these could impact export-driven industries such as manufacturing, mining and agriculture.
'This uncertainty, combined with rising inflation, puts policymakers in a difficult position – trying to support growth while also protecting the rand and price stability.'
Consumer Price Inflation (CPI) rose to 3% in June, up from 2.8% in May. This was the first time in three months that inflation returned to within the Reserve Bank's 3% to 6% target range.
However, CPI remains well below the 5.2% seen this time last year.
Food prices remain higher than expected, particularly red meat, after a bout of the foot-and-mouth disease, yet consumer goods inflation remains subdued.
Johann Els, chief economist at Old Mutual, said the weak overall pricing pressure in the economy justifies a further 0.25 percentage point interest rate cut this week.
ALSO READ: Understanding the impact of rising inflation on SA's interest rates
Potentially lower inflation targets later in the year or in 2026 could also jeopardise the interest rate situation for South Africans going forward.
South African Reserve Bank (SARB) governor Lesetja Kganyago has strongly advocated for the country to lower its inflation target from 4.5% to 3%.
Experts argue that a lower inflation target would improve price stability, reduce borrowing costs, and enhance investor confidence in the long term. However, many feel it would entail some short-term 'pain' for the sake of long-term gain.
Yet tightening monetary policy could be a dangerous move in the current economic climate, warns Frederick Mitchell, chief economist at Aluma Capital.
'Conventional wisdom suggests that raising interest rates can curb inflation, yet in the current environment, where inflation remains subdued but economic growth is threatened, tightening monetary policy may exact an economic toll without addressing the underlying trade issues,' Mitchell said.
IOL Business
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Daily Maverick
an hour ago
- Daily Maverick
How SA can transform promises into tangible improvements for all
South Africans want to see tangible improvements in their daily lives. They want to know whether the government is focusing on the right priorities to move the country forward. Development Indicators (DIs), produced annually by the Department of Planning, Monitoring and Evaluation, provide a strategic evaluation of South Africa's development trajectory and the impact of public policies. Aligned with its vision of being a catalyst for the country's development goals, the department produces the Development Indicators to support informed public discourse and evidence-based policymaking. This not only promotes transparency but also positions monitoring and evaluation as a tool for advancing democracy by creating space for diverse views and public engagement in assessing the country's development and exploring future scenarios. As researchers at the Harvard Centre for International Development observe, 'Policy success for whom?' is a crucial question, as perceptions of progress often vary among stakeholders. The Development Indicators 2024 provide a long-term trend analysis up to 2024 and serve as a baseline for the seventh administration to support the implementation of the Medium-Term Development Plan (MTDP) 2024-2029. The findings reaffirm the strategic focus of the Medium-Term Development Plan, of placing inclusive economic growth at the centre of government efforts. They also recognise that while the National Development Plan remains the country's long-term vision, its foundational assumptions have shifted significantly due to demographic changes including migration, the Covid-19 pandemic and global disruptions. It is therefore clear that processes for planning beyond 2030 need to be initiated. The findings are sobering. None of the high-level National Development Plan targets for reducing unemployment, poverty and inequality are currently on track to be attained by 2030. Of the 85 Development Indicators reviewed, about 13 (15%) are on track, while 31 (36%) show promising progress. Population growth has outpaced economic expansion and the recent global disruptions have necessitated revision of medium-term growth projections. The global context is that only 17% of Sustainable Development Goals targets are on track, with a third either stalled or regressing. Higher, inclusive and sustained economic growth is essential for shifting our development trajectory. We must accelerate economic reforms to surpass the 3% growth threshold if we are to meaningfully change outcomes. Inclusive growth must translate into more jobs, rising household incomes and improved wellbeing for all. To reduce household dependence on the social assistance programmes, the country must achieve stronger economic growth that will create jobs and income-generating opportunities and enable more people to participate in the economy and secure their livelihoods. Nonetheless, progress in key areas offers strategic opportunities to accelerate impact: Infrastructure development: Out of 268 priority infrastructure projects, 28 have been completed and about 80 are under implementation across sectors including energy, water, transport and housing. Budget 2025 allocates close to R1-trillion over 2024-2027, to be implemented through state-owned enterprises, municipalities, provinces, national departments and public-private partnerships. This requires both initiating new projects and maintaining existing ones. Labour market transformation: South Africa has built a more diverse labour force, with progressive labour laws advancing representation across race, gender, age and skill levels. Public employment programmes: The Presidential Employment Stimulus has provided work and livelihood support to approximately 2.2 million people since October 2020. The Expanded Public Works Programme created 923,718 work opportunities in 2024/25. Digital transformation: South Africa enjoys near-universal mobile network coverage, with the rollout of 5G gaining traction. Continued reforms in the telecommunications sector and digital public infrastructure initiatives must help to broaden connectivity and inclusion. International relations: South Africa remains an active player on global platforms such as BRICS+, the African Continental Free Trade Area, the G20 and others. Environmental sustainability: Greenhouse gas emissions remain within the country's Nationally Determined Contributions targets, and the marine and terrestrial conservation areas continue to expand. Land reform: 3 million hectares had been transferred (78.1% of the National Development Plan target). Focus must now shift to enhancing land claims processes, post-settlement support and the diversified use of land, including agriculture, tourism, housing and cultural preservation. Public finances: Gross tax revenue and compliance have improved, accompanied by sustained progress in audit outcomes at both the national and provincial levels. Education: Near-universal access to early childhood development for children aged 5-6 and basic education for ages 7-15 has been achieved, with gender parity across most educational levels. However, attention must now focus on improving school infrastructure, the quality of education and expanding the capacity of universities and Technical and Vocational Education and Training institutions to meet the growing demand and skills needs of industry. Health: Positive gains in life expectancy and reductions in maternal and child mortality point to improved health outcomes. Modernisation of the public health system and the rollout of the next phase of the National Food and Nutrition Security Plan are among the critical next steps to bring South Africa on par with its BRICS+ peers on health outcomes. Basic services: More than 80% of households have access to electricity, clean water and sanitation. Ongoing efforts aim to expand access through annual household connections, especially in under-served areas, while also ensuring quality of service delivery in local municipalities. Social protection: Expanded social assistance has helped to cushion the poor and enhance human capability. However, long-term reliance on grants must be reduced through employment-led growth. Efforts are being made to accelerate the implementation of key priorities as outlined in the Medium-Term Development Plan to build an inclusive economy and achieve National Development Plan ambitions. The Medium-Term Development Plan 2024-2029 outlines priority areas for consolidating progress while addressing persistent development challenges. Strategic interventions include: Implementing the Energy Action Plan, Digital Public Infrastructure Roadmap, and Freight Logistics Roadmap to deliver on their objectives. Modernising mining, agriculture and manufacturing, and promoting new growth sectors such as services. Enhancing export diversification and trade resilience. Leveraging international relations to attract investment, expand trade, tourism and access technology. The success of South Africa's economic growth strategy will be tested by the country's ability to maintain its status as Africa's largest economy; enhance the global competitiveness of key sectors and urban regions (e.g. Johannesburg, Cape Town, Durban); generate inclusive employment growth; and reduce long-term dependence on social support, particularly among working-age adults. Operation Vulindlela has unlocked critical reforms. The second wave of structural reforms are taking off, focusing on improving local government, expanding digital public infrastructure to broaden connectivity and inclusion, and building city regions that foster dynamic, business-friendly environments. Accelerating inclusive growth is critical to ensuring that no one is left behind. This means creating jobs, raising household incomes and improving well-being for all citizens — especially for historically marginalised groups. Achieving this requires economic redress, and equitable access to opportunities and spatial transformation, among others. Prioritising empowerment of women, youth and persons with disabilities should be central to these efforts. The Department of Planning, Monitoring and Evaluation continues to support government institutions in translating policy intentions into development results. The department does this through coordination of planning across government, monitoring of implementation and supporting performance management of ministers and heads of departments (HoDs) to hold them accountable for delivering results. Where service delivery fails, we intervene through frontline support to ensure that community concerns are swiftly resolved. We want to strengthen consequence management for poor performance and service delivery breakdowns. And we want to strengthen collaboration with social partners (business, labour and civil society) to foster a culture of service delivery excellence. DM
Daily Maverick
an hour ago
- Daily Maverick
Crypto Corner: They cut the music at the altcoin party, but innovation is still pumping
If you're trying to use your crypto rather than trade it, the real question is: how should you respond to the ups and downs of a volatile market? I was going to talk about altcoins maturing and becoming more stable, predictable investments, but then the market plunged last week. XRP dropped almost 20% in a single day. Bitcoin briefly tumbled below R2.1-million. Ether was hit hard too. Yet we had started the week with analysts hyping Ethereum's institutional appeal and setting price targets for ether beyond R70,000. We even had Pokémon cards getting the non-fungible token treatment on Solana. What gives? Crypto markets are volatile – by now that's no revelation. But if you're trying to use your crypto rather than trade it, the real question becomes: how should you respond to these ups and downs? South Africans can at least rely on some market innovation on the licensed exchanges. Binance recently partnered with Peach Payments and MoneyBadger to allow crypto payments at major online merchants. Using your Binance app, you can now buy bed linen or even a spade from local stores using stablecoins, without the gas fees (transaction costs on Ethereum) or volatility. This shift from speculation to utility is important. Sure, altcoins might offer eye-watering gains during a bull run, but everyday-use cases are what will determine crypto's staying power. And it seems like that's where our local industry is leaning. Luno, for instance, announced tokenised stock trading last week, where you can invest in major US companies. So there's a lot going on. Binance Africa legal adviser Larry Cooke called the Peach Payments partnership a 'breakthrough moment' for crypto payments – and he's not wrong. With MoneyBadger already processing more than R7-million in crypto payments this year and expanding rapidly, South Africans are moving from HODLing (buy and hold or as the crypto bros would say – holding on for dear life) to spending. If the price charts make you queasy, maybe shift your focus. Use your crypto for groceries, gadgets or even municipal bills, and leave the day trading to the whales. That way, you're not just riding the waves but doing something useful: nurturing your portfolio while the market sorts itself out. DM This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.
Daily Maverick
an hour ago
- Daily Maverick
GNU must take blame for not acting to avert imposition of Trump's exorbitant tariffs
The recent decision by US President Donald Trump to increase tariffs from 10% to 30% on most South African imports, effective this past Friday, 1 August 2025, is a damning indictment of our foreign policy shortcomings. At the heart of this unfolding crisis is the African Growth and Opportunity Act (Agoa), which for nearly 25 years has given South African goods duty-free access to US markets. In 2023, more than $3-billion worth of exports flowed to the US under Agoa, sustaining jobs and livelihoods in key industries such as automotive manufacturing, agriculture, and mining. It's difficult to overstate just how beneficial Agoa has been. The US is South Africa's second-largest export market, and Agoa alone accounts for more than $2-billion in exports annually. Entire value chains are built on this preferential access. This has resulted in tens of thousands of jobs created and maintained in export-related industries, especially in the automotive and agricultural sectors. Yet, what once felt like abstract diplomatic tensions have now resulted in exorbitant tariff hikes that could wipe out margins for exporters and put thousands of jobs at risk across key sectors — from citrus and wine to auto manufacturing and metals. While some may point fingers at an increasingly protectionist White House, the Government of National Unity (GNU) must accept responsibility for what is in most parts a self-inflicted wound. Those in the GNU say that jobs and the economy are their number one priority. But when it came to protecting one of our largest export markets and tens of thousands of South African jobs, they sat on their hands and watched the tariffs roll in. This diplomatic misstep will be measured in job losses, declining export revenue, and dwindling investor confidence. Instead of strategic engagement, disarray ensued. Civil society organisations like AfriForum and Solidarity secured high-level meetings in Washington, while our official diplomatic presence remained directionless. Undermining national trade posture Even the Democratic Alliance was accused of undermining our national trade posture through uncoordinated political freelancing, a move that seemingly cost MP Emma Powell her role as the DA's International Relations spokesperson. At the core of Washington's growing frustration is South Africa's erratic and often contradictory foreign policy. Despite claiming to be non-aligned, our government has taken deliberate steps that signal the opposite. The ANC's hosting of senior Hamas representatives in Pretoria, Minister Naledi Pandor's infamous meeting with then Iranian president Ebrahim Raisi, and South Africa's ambiguous stance on Russia's war in Ukraine have all sent provocative messages that clash with global democratic norms. These actions carry real-world consequences, as this latest tariff decision makes painfully clear. Even under the more diplomatic Biden administration, South Africa failed to rebuild trust. We did not use the opportunity to engage, negotiate or reassure. And now, under a more transactional Trump presidency, patience has run out. What is clear is that South Africa urgently needs a foreign policy rooted in clear principles and strategic interests, instead of nostalgia and ideology. Our diplomacy must be led by the state, above party politics, and laser focused on three core objectives: expanding trade and economic growth, defending human rights, and advancing democracy on the continent and beyond. The current bipolar approach, with mixed signals from different actors, is unsustainable and deeply damaging. A government-led, coherent strategy to stabilise and grow our trade relationship with the US is now mission-critical. This strategy must include five immediate actions: South Africa must reassert official leadership in managing our engagement with Washington. Splinter groups and political parties must refrain from back-channelling for narrow political gain. Trade policy is national policy. South Africa must speak with one clear, credible, and united voice. Our government must directly engage with the US Congress, which holds immense sway over trade legislation. Lawmakers on Capitol Hill need to hear not just about Agoa's benefits for South Africa, but for the US too. More than 500,000 American jobs are tied to trade with us. We should use that as leverage. South Africa must table a credible trade and investment plan that showcases the mutual benefits of partnership. Priority sectors like automotive exports (valued at more than $1.2-billion annually), citrus, wine, metals and green technology must be at the forefront. We must position ourselves as a reliable partner for US capital, technology, and innovation as America eyes new partners in the global energy transition. A full economic risk assessment must be urgently commissioned to measure the impact of the proposed tariffs on jobs and industry. Such a study would not only quantify the damage, but guide our negotiating position and enable smarter policy responses, including sector-specific relief or adjustment mechanisms. Perhaps most urgently, we must appoint a capable and credible ambassador to Washington. This needs to be someone who understands both diplomacy and economics. The job now requires high-stakes negotiations to restore market confidence and protect jobs. That seat has remained vacant or ineffective for far too long. The truth is that South Africa's foreign policy has long lacked a future-focused economic dimension. It is too often discussed not in terms of trade, growth or a digital future, but in the context of how liberation movements can remain in power. This mindset has locked us into outdated alliances, including with authoritarian regimes that are neither democratic nor innovative. Meanwhile, we've neglected crucial relationships with long-standing partners like the US, and failed to appoint ambassadors, attend key forums or secure investment guarantees. What is clear is that we cannot afford to respond with more muddled messages, delayed decisions and ideological posturing. If we do not act with clarity, urgency and humility, we risk permanently losing one of our most important trade relationships. Now more than ever, our foreign policy must serve South Africa's economic interests. Jobs, industries and future growth hang in the balance. DM
