Everything in the financial world is changing so often and so fast that it is difficult to keep up sometimes, and therefore consumers are not always sure if what happens will benefit them where it matters most: in their pockets.
Tomorrow the Monetary Policy Committee (MPV) of the South African Reserve Bank (Sarb) will decide whether to cut the repo rate or keep it as it is, with thankfully no increases expected. The MPC already lowered the repo rate from 8.25% at the start of 2024 to 6.75% by the end of 2025. What can we expect in the first month of 2026?
Patrick Buthelezi, economist at Sanlam Investments, says the MPC is expected to continue easing the repo rate this year, as the Sarb’s Quarterly Projection Model, a broad guide, signalled. However, the timing of the first cut remains uncertain, he says.
“The Sarb is committed to anchoring inflation at 3.0%. Although headline inflation surprised to the downside for much of last year, it ended 2025 at 3.6%. Core inflation also edged higher, reaching 3.3% in December 2025.
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MPC flagged Eskom’s failure to recover additional revenue could stop repo rate cut
“In addition, the recent court ruling permitting Eskom to recover additional revenue suggests that administered prices will exert upward pressure on inflation, a risk the MPC highlighted in November, flagging that it could slow the pace of monetary policy easing.”
Buthelezi says this backs the case for caution, with the Sarb maintaining a restrictive policy stance in the near-term to ensure that both headline and core inflation return sustainably to the 3.0% target.
“Policy easing can resume once there is clarity on electricity tariffs and the Sarb is confident that inflation is firmly trending toward the target.”
However, he says, the weakening US dollar, combined with favourable terms of trade, supported the rand, which bodes well for lower imported inflation. “A firmer exchange rate, which the Sarb would incorporate into its projects, would help to improve its inflation outlook.
“In addition, although inflation expectations remain above 3.0% and vary across survey participants, they have been drifting lower. Overall, given the strong arguments for holding the repo rate steady for now as well as cutting, the MPC is likely to be divided on the decision. We expect the MPC to maintain a cautious approach, even as it remains biased toward easing this year.”
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Particularly difficult to predict repo rate in current environment
Albert Botha, head of fixed income at Ashburton Investments, says thinking about potential interest rate cuts by the Sarb is particularly difficult in the current environment where things are consistently in flux.
“Currently there is considerable uncertainty about the direction of global interest rates over the next couple of months, but both local and global rates are certainly in a downward phase over a longer time horizon – yet the exact timing of further cuts remains unclear.”
He says internationally, US president Donald Trump seems inclined to appoint a Federal Reserve governor who is more likely to support rate cuts, which would certainly reinforce this easing bias.
“Given the shift in South Africa’s inflation environment, together with the strong rally in the rand, multiple repo cuts also appear likely domestically.”
He points out that currently, with the South African repo rate on 6.75%, the local markets are pricing in roughly three to four cuts of 0.25% over the next 12 to 18 months, with expectations that the repo rate will bottom out in the 5.75%–6.00% range.
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Will Reserve Bank cut the repo rate if the US Fed does?
“If the US Federal Reserve delivers more than 1% of cuts, the probability increases that South Africa could also end its rate cutting cycle nearer to 5.75%. Historically, the repo rate in South Africa has averaged about 1%–1.5% above inflation.
“With local inflation expectations now firmly adjusting downward toward 3%, a 1.5% premium over that level would imply a 4.5% ‘equilibrium’ rate. However, it is important to remember that these historical averages were largely formed in a period where global real interest rates were below zero, so we need to adjust our number upwards in a world of structurally higher real rates.”
Botha points out that if global repo rates continue to fall and the Sarb remains firmly in control of inflation, South Africa could see a long-term average repo rate of around 5.5%. “This would be a significant boon for the local economy, particularly the housing market, and would also support both corporate and government borrowers through structurally lower funding costs.”
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