Markets are pricing in a higher chance of an interest cut this week, though consensus is still tilted toward a hold.
According to Investec Chief Economist Annabel Bishop, markets are pricing in a 44% chance that the South African Reserve Bank (SARB) Monetary Policy Committee (MPC) will cut rates by 25 basis points on Thursday (29 January).
While this is still below the 50% tilt—meaning views are still that there is a 56% chance of a hold—it reflects a significant shift up from just 20% last week.
One of the key drivers of the rosier outlook for interest rate cuts is the rand’s standout performance, which has strengthened significantly on Monday.
The local unit gained over 0.7% against the dollar in early trade, dipping below the R16/$ resistance level briefly before pulling back.
However, it continues to push against the level, bolstered by weaker sentiment in the dollar and gains in gold price, which surged to record levels above $5,000 an ounce.
Bishop noted that the rand has gained 3.1% this year against the US dollar, while the US dollar is 1.1% weaker by comparison.
This means the domestic currency has appreciated by 2.0% this year on its own—contrasting the rand’s gains in 2025, which were primarily driven by the weaker dollar.
“Market concerns have also driven de-dollarisation, as political risk in the US has climbed higher, along with fiscal risk on the rapid growth of US debt, with threats to the independence of the Federal Reserve Bank, and a US tendency towards brinkmanship,” Bishop noted.
“Globally, Central Banks have been switching from US treasuries, and so US dollar assets, to gold, driving down the US dollar index, as US threats on tariffs for countries in its crosshairs proliferate, negatively affecting sentiment towards the US.”
What it means for interest rates this week
While the rand’s rally has reflected in shifts in financial market probabilities, economists still believe the odds are higher that the SARB will hold rates.
The MPC’s last decision on rates in November 2025 was to cut by 25 points. This came soon after the National Treasury confirmed that the SARB would work towards a 3% inflation goal.
Given the new inflation target, a series of cuts throughout 2025, and inflation ticking slightly higher in the final months of the year, many believe the SARB will first want to see how the market responds.
Nevertheless, there is a wide view that South Africa still has between 50 and 75 basis points of cuts in the current cycle.
This has led to a more cautious forecast, with some economists anticipating a hold on rates in January, a 25 bp cut in March, another hold in May and a final 25bp cut for the year in July.
Some economists have taken a more hawkish view, anticipating cuts in the latter half of the year, with the first 25bp cut only coming in July.
“We still think the MPC will be more cautious in the first half of the year, given the new target and the anticipated stickiness in inflation,” said Nedbank.
“They may also want to wait and see how domestic demand and borrowing respond to the earlier interest rate cuts. Thereafter, we expect inflation to resume its downward trajectory, creating room for further easing in the second half of the year.”
On the other end of the spectrum, there are those who see inflation as benign—even though it was up marginally in the latest data—and market conditions as opportune to cut rates sooner.
On the balance of views, Investec said that the call for Thursday’s meeting will be closed.
“We believe there will be a close decision between an interest rate cut and a no-change stance when the MPC meets,” it said.
