Absa’s senior economist has warned that any meaningful interest rate cuts are unlikely before 2027.
For households paying off homes, cars and other debt, this means that financial pressure will continue for the next year or so.
Absa senior economist Miyelani Maluleke said during a webinar on the bank’s quarterly economic outlook that the Reserve Bank is unlikely to lower rates again in the short term.
“Our baseline view is that it will be a little difficult for the SARB to deliver interest rate cuts in the near term,” he explained.
While inflation dropped to 3% in July, Absa’s forecasts show it will remain sticky, averaging 3.9% in 2026 and 3.5% in 2027. This is higher than the Reserve Bank’s own projection of 3.3% for 2025 and 2026, and 3% in 2027.
The Reserve Bank has also noted that it wanted to formally adopting 3% as its new inflation anchor, the bottom of its existing 3% to 6% target range.
Maluleke said Absa welcomed the shift, and noted that the SARB’s decision to move the inflation anchor from 4.5 to 3% will help in the long run to reduce expectations of inflation.
However, he cautioned that the central bank’s timeline is too optimistic. “Inflation is going to remain sticky and higher than the SARB expects,” he said.
This outlook dims prospects for rate cuts, even though the repo rate currently stands at 7% after the Monetary Policy Committee reduced it by 25 basis points in July.
Banks’ prime lending rate is now 10.5%, which still leaves South Africans with expensive loans and mortgages. Absa economists expect only gradual relief, pencilling in cuts of 50 basis points in 2027 and another 50 in 2028.
The bank also trimmed its GDP growth forecasts, cutting 2025 growth to just 0.9%, with an average of 1.6% in 2026 and 2.1% between 2027 and 2029.
With weak growth and little policy space, households will continue to carry the burden of high debt costs.
Interest rates should be 3.5% lower than they are now
Economist, Dr Roelof Botha.
Economist Roelof Botha is highly critical of the central bank’s stance, and argued that the focus on driving inflation down to 3% is misguided.
“The thought that they now want to change the target range for inflation from 3% to 6% to a point of 3% is so ridiculous it defies comprehension,” he said.
He believes inflation in South Africa will always be structurally higher than in developed markets.
“We are far from major consumer markets, which means it’s always going to be more expensive for us to get goods into and out of the country. We will always have that extra 1 to 3% inflation on top of exchange rate volatility.”
Botha added that much of the inflation South Africa has faced in recent years was driven by shocks no central bank could control.
“Global freight shipping rates increased by 700% immediately after Covid, and oil prices rose by 400% due to Russia’s invasion of Ukraine,” he said.
“When these things happen, there is no central bank in the world that can shield itself against such events. You cannot shield yourself from cost-push inflation.”
He argued that the Reserve Bank’s restrictive stance has made life harder for South Africans and worsened unemployment.
“It was never necessary for the Monetary Policy Committee to take interest rates to a 15-year high when there was no demand inflation in the economy. In the process, they aggravated unemployment in South Africa – and that is a fact.”
The Altron Fintech Household Resilience Index, showed a 2.5% real increase year-on-year in household resilience, five times higher than GDP growth.
However, Botha warned that this improvement was due in part to households dipping into retirement savings through the new two-pot system, which may not be sustainable.
Botha also criticised the real prime lending rate, saying it has more than doubled compared to the period when Gill Marcus was governor.
“During the tenure of the previous governor, Gill Marcus, the average real prime rate was 3.4%. Today our real prime rate is more than double that.”
“It is incomprehensible that a country like ours can experience such a dramatic shift in monetary policy priorities in an environment where economic growth and employment creation should be paramount.”
“With inflation currently at 3%, I would like the real prime rate to be at 4%. That gives you a 7% prime rate. If I had been the governor of the Reserve Bank, the prime rate of this country would have been 7%,” he said.
He believes growth and job creation should trump narrow inflation targets, even if inflation drifts up to 5% or 6%.
South Africa could soon see a credit rating upgrade amid significant improvements in the state’s finances—even if escaping junk status will require patience.
