Economists at Nedbank believe the South African Reserve Bank (SARB) Monetary Policy Committee (MPC) will hold interest rates for longer than most other projections—until the second half of the year.
Commenting on the latest inflation data published by Stats SA this week, the group noted that the slight bump in inflation to 3.6%, while in line with expectations, dampens hopes for interest rate cuts soon.
The rise in inflation from 3.5% in November 2025 was driven by rising food, fuel and housing and utilities costs.
While it said the rise is temporary and reflects the lower base established in 2025, it does mean that CPI is likely to drift moderately higher in the first quarter of 2026, peaking at around 3.7%, before easing gradually toward 3%.
“We forecast inflation to average 3.4% in 2026 before easing to 3% in 2027,” it said.
Given the mild near-term upward pressure on inflation, the bank expects the SARB to hold interest rates steady in the first half of 2026.
This would mean the country would only see the next interest rate cut in July at the earliest.
“Once inflation is on a clear downward path towards 3%, we believe the SARB will resume its rate-cutting cycle, reducing interest rates by a further 50 basis points before the year is done,” it said.
At the core of Nedbank’s relatively hawkish view is that South Africa’s inflation environment is vulnerable to global market uncertainty, with inflationary pressure coming from petrol prices and Eskom.
Both oil prices and the rand remain vulnerable to geopolitical uncertainty, which increased sharply at the start of 2026, with the US strike on Venezuela and the unrest in Iran, it said.
More recently, US President Donald Trump’s controversial remarks about Greenland also unsettled markets.
While he has since seemingly pulled back from this—boosting markets and the rand—the entire situation shows how volatile global markets can be.
Meanwhile, fuel inflation is expected to rise modestly in the coming months due to significant base effects, Nedbank said.
The impact should be contained by subdued global oil prices and a relatively stable rand, but again, these are tied to international market moves.
Meanwhile, electricity and water tariffs will also add mild upward pressure by raising production and operating costs, thereby pushing inflation higher.
Eskom could be hiking electricity prices by as much as 10.5% this year (in April and again in July) if energy regulator Nersa allows the utility to siphon another R76 billion from customers through tariffs.
Hold then cut
Nedbank’s projection runs counter to most economists’ forecasts, which expect the SARB to front-load interest rate cuts in the first half of the year.
Some economists and analysts, such as Aluma Capital’s Frederick Mitchell and PSG Wealth CIO Adriaan Pask, believe there is room for interest rate cuts immediately, ie, in the January meeting.
“Inflation remains subdued across most categories. The inflation outlook for 2026 remains benign, supported by a strong rand, which should further dampen price pressures,” Pask said.
“The Reserve Bank is likely to be in a position to cut interest rates in the first few months of 2026.”
However, there is a broader view that the first cut for the year will take place at the March meeting, followed by a second cut in July.
Pask acknowledged this, saying that, while he expects two 25bp rate cuts over the coming months, the SARB may adopt a cautious approach and delay the first cut until March.
According to Investec Chief Economist Annabel Bishop, markets (as reflected in the Forward Rate Agreement curve) do not expect the MPC to cut interest rates this month, but do build in a 25bp cut in March.
The reason for a more tapered approach is rooted in the SARB’s desire to suppress inflation over the medium term and embed the new target of 3%, she said.
“We expect the next move in the repo rate will be in March this year, a 25bp drop as CPI inflation falls to 3.0% y/y in February, lower on a rise in inflation a year ago and the modest inflation environment.”
Frank Blackmore, lead economist at KPMG South Africa, also ruled out an interest rate cut in January, noting that the SARB would be cautious amid heightened geopolitical uncertainty and rising inflation.
“Our prediction is that in the second quarter of this year, inflation could drop to as low as 3%, which means that your real interest rate would move up closer to that 4% range and therefore give the Bank a lot of space in order to reduce the repo rate further,” he said.
