No more interest rate cuts in 2025?

The chance of further interest rate cuts this year could be fading, say economists.

Fuel price hikes, conflict in the Middle East, and the end of the temporary pause to US tariffs mean that the Reserve Bank is more likely to be cautious at this month’s policy meeting on 31 July and for the rest of the year.

The Reserve Bank is also likely to look at the decisions taken by other central banks. The US Federal Reserve meets on 29 - 30 July, and is widely expected to leave interest rates unchanged.

Holding the prime rate steady would leave it at 10.75%, where it has been since their May meeting. That’s a full percentage point below the 2023 - 24 peak, and within a percentage point of where it was before the pandemic. However, after the May cut, industry leaders including Seeff Property Group chairman Samuel Seeff said that further rate cuts were still needed to boost the market.

High interest rates make it more expensive for landlords to invest in new properties. They also increase debt repayments, making it tougher for tenants to afford rent. On the other hand, they may encourage tenants to keep renting instead of buying homes, increasing demand in the residential rental sector.

Will inflation be the deciding factor?

There is still some good news for anyone hoping for an interest rate cut. The Bureau for Economic Research, which forecasts inflation for SARB, has lowered its expectations for 2025 and 2026. It now expects inflation to be 3.9% this year, down from the 4.4% it predicted last quarter. Next year, it expects it to be 4.3%.

That is below the Reserve Bank’s inflation target of 4.5%, which gives them more room to cut interest rates. But the Bank and the National Treasury are exploring the possibility of lowering the target inflation rate to 3%, which would mean interest rates staying higher for longer.