By Lehlohonolo Lehana.
The South African Reserve Bank (SARB) is expected to hold the interest rates steady as the country hopes to strike a trade agreement with the US before reciprocal tariffs take effect on August 1.
The decision will be given a day before a deadline by President Donald Trump for nations to forge bilateral trade deals or face steep tariffs on their exports to the US, with South Africa’s set at 30%.
The tariffs are part of the Trump administration’s “Liberation Day” measures announced in April 2025, which have caused great anxiety and uncertainty in global markets and trade.
Despite local inflation remaining at the lower end of the 3% to 6% range—and consistently below the SARB’s 4.5% target—the tariff uncertainty has put forecasters on edge.
Given the resultant volatility, the MPC’s July meeting is expected to be a tight vote.
The committee has already cut rates by 100 basis points this cycle: twice this year (25bp in January and May), following two 25bp cuts at the tail-end of 2024.
Economists at KPMG believe that uncertainty around the impending Trump tariffs will drive a more cautious approach by the central bank and likely lead to a hold.
KPMG’s Lead Economist, Frank Blackmore says inflation has remained below the lower band at 3%. Therefore, in a purely data-driven process, one might expect there to be room for a 25 basis-point reduction at the end of the month. However, the decision is not that straightforward. Inflation expectations are currently closer to the 4% mark.
The Reserve Bank has also raised the possibility of lowering the inflation target, from the current midpoint of 4.5% within the 3–6% target band, down to 3%. If this is the case, and the aim is to bring inflation expectations down to that level, interest rates may need to remain slightly higher for longer. This could mean that rates remain unchanged until the end of the year to ensure inflation expectations are aligned with the revised target.
In addition, developments among our trading partners, particularly with countries like the United States, must be considered. Following the imposition of tariffs under President Trump, there is a market assumption that US inflation figures for June will show an uptick due to those tariffs. This would reduce the likelihood of any rate cuts in the US and, in turn, make a local rate reduction less likely as well.
In summary, there are three key areas influencing the decision:
- Current inflation and inflation expectations, which could support a rate cut
- The potential revision of the inflation target to 3%, which may justify holding rates steady
- External factors, such as the inflationary impact of US tariffs, which could also reduce the likelihood of a rate cut.
South Africa is a minor US trade partner, but Minister of Trade, Industry and Competition Parks Tau said that a pre-trade deal with the US is in the works, but contingent on unspecified requirements.