South African Reserve Bank Expected to Cut Interest Rates Again

The South African Reserve Bank may cut interest rates by 25 basis points due to low inflation and weak economic growth. Economists predict this decision based on subdued inflation, weak growth, and the impact of 30% US tariffs on local exports. The central bank previously cut rates in May, citing global economic volatility and uncertainty. The decision is expected to be announced on Thursday.

The South African rand has been under pressure as the dollar gains strength on global markets. The currency's decline is attributed to expectations of a local interest rate cut and concerns over impending U.S. tariffs on South African exports. As of Monday, the rand traded at 17.8650 against the dollar, a 0.9% drop from the previous Friday's closing level [1].

Economists polled by Reuters anticipate that the South African Reserve Bank (Sarb) will announce a 25 basis point reduction in its repo rate on Thursday. This move is expected to further lower South Africa's relative interest rate return compared to less risky markets. The decision comes amidst subdued inflation and weak economic growth, with the country's inflation rate hovering around 4.5% [4].

The looming tariffs, set to take effect on Friday, pose a significant threat to South Africa's agriculture and automotive sectors. The country has yet to agree on a trade deal with the United States, which could lead to potential job losses in these sectors. The Sarb's potential shift to a 3% inflation target, aimed at boosting economic growth and lowering borrowing costs, could mitigate some of these risks [4].

Domestic data releases this week, including June money supply and private sector credit extension on Tuesday, June budget figures on Wednesday, and June producer inflation and trade numbers on Thursday, may also influence market sentiment. The Johannesburg Stock Exchange's Top-40 index was down 0.3%, while the benchmark 2035 government bond saw its yield fall 4 basis points to 9.81% [1].

The European Central Bank (ECB) has been actively reducing interest rates, with three cuts totaling 75 basis points since June. The ECB's Vice President, Luis de Guindos, has stated that while inflation is moving in the right direction, economic growth remains suboptimal [3]. The ECB's policy decisions and the potential impact of U.S. President Donald Trump's election on global trade policies will continue to influence market dynamics.

The South African rand's volatility underscores the challenges faced by the country's economy. The Sarb's decision to cut rates and the potential impact of U.S. tariffs will be closely watched by investors and financial professionals. As the week progresses, the release of domestic economic data and the ECB's policy stance will provide further clarity on the rand's trajectory.

References:
[1] https://www.marketscreener.com/news/south-african-rand-starts-data-filled-week-softer-eyes-on-tariff-deadline-ce7c5fd8d88bfe24
[2] https://www.reuters.com/world/africa/south-african-rand-falls-before-expected-rate-cut-looming-us-tariffs-2025-07-28/
[3] https://www.moomoo.com/news/post/81216692/record-tr4cking-news-tesla-boeing-lockheed-martin-nike-cheniere-energy-revvity-biggest-stock
[4] https://iol.co.za/business-report/economy/2025-07-29-sarbs-potential-shift-to-3-inflation-target-could-benefit-south-african-economy-economists/
[5] https://www.investors.com/news/economy/federal-reserve-open-to-rate-cut-us-eu-trump-tariffs-deal/?mod=newsviewer_click&refcode=aflMarketWatch&src=A00619