South Africans could see interest rate relief sooner than expected, with Bank of America (BofA) now projecting two cuts as early as May and July 2025.

This updated forecast follows the bank’s recent three-day visit to South Africa, where its economists concluded that the South African Reserve Bank (SARB) may take advantage of a more stable global environment to begin easing rates ahead of schedule.

Unlike many local analysts who still expect just one cut in 2025, likely later in the year around September or December, BofA now stands out as an outlier, pencilling in two consecutive 25 basis point cuts that would bring the repo rate to 7% by the end of July.

“The risk when it comes to rate cuts is skewed to more, rather than less,” BofA stated.

Inflation is benign and likely to remain so. We are forecasting low oil ($65 per barrel) and an appreciating ZAR given a weakening USD. Headline CPI is likely to average 3.6%.”

According to BofA, its revised expectations are based on multiple conversations with SARB’s Monetary Policy Committee members in Washington and South Africa in recent weeks.

The impression, the bank said, is that the central bank remains cautious, but improving external conditions and muted inflationary pressure could open the door for action. Since SARB’s March meeting, the bank noted, global uncertainties have started to ease.

“Since the March MPC, global uncertainty has somewhat reduced through tariff de-escalation. We now know tariffs are likely to be smaller than announced on April 2.We are a month into the 90-day pause on tariffs while the US negotiates trade deals,” BofA said.

The impact of US tariffs on South Africa’s economy is expected to be minimal. The United States accounts for approximately 7.7% of South Africa’s exports, mainly in precious metals, vehicles, iron and steel, chemicals, and minerals.

“With the exemption of minerals, only a small share of auto and agriculture exports is exposed,” the bank explained.

Still, broader risks remain. Tensions between South Africa and the US, driven by geopolitical positions and domestic economic empowerment legislation, have not entirely faded.

Added to this are concerns around slower economic growth in both the US and China, which BofA warns could drag global growth and, by extension, South Africa’s economy.

On the domestic front, BofA noted that fears around a collapse of the Government of National Unity (GNU) have lessened, with political discussions now more focused on managing internal tensions rather than survival.

Markets have reflected this relative calm through narrowing credit spreads, and the bank believes the GNU is likely to hold.

While BofA now anticipates a cut in May, other economists maintain the view that the SARB will hold steady at that meeting.

Interest rate expectations for 2025 have shifted considerably throughout the year. Initially, forecasters expected two cuts by May, totaling 50 basis points, but those hopes were dashed after a hold decision in March.

That decision followed major political shocks abroad, including US President Donald Trump’s early-term executive orders and the announcement of aggressive new tariffs dubbed “liberation day” measures.

Those developments caused a wave of global uncertainty, with most analysts revising their forecasts to rule out cuts altogether in 2025.

However, in recent weeks, sentiment has shifted again, with the US Federal Reserve signaling more cuts this year, prompting a fresh look at South Africa’s path.

Although BofA acknowledges that SARB could still opt to hold in May, it says this depends heavily on the outcome of the upcoming national Budget.

If the third attempt at passing a workable budget falters—due to poor policy decisions or further political infighting—it could reignite concerns about GNU stability and trigger a market sell-off that forces SARB to hold off on any cuts.

“Conversely, a neutral budget with a GNU majority vote would lead to a positive market reaction, lower yields, a stronger ZAR, and tighter credit spreads. That would clear the way for a SARB cut,” BofA said.

Given these evolving dynamics, BofA’s forecast for SARB’s Monetary Policy Committee decisions through 2025 now stands as follows:

Bank of America expects a 25 basis point rate cut in September 2024. Another 25 basis point cut is forecast for November 2024. A third cut of the same magnitude is anticipated in January 2025.

In March 2025, the bank expects a hold. A 25 basis point cut is projected in May 2025, followed by another 25 basis point cut in July 2025. For both September and November 2025, BofA expects the SARB to hold rates steady.