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Projected South Africa interest rate in 5 years: SARB signals commitment to harness inflation surge

By News

Edited by Jekaterina Drozdovica

11:34, 18 November 2022

South African two hundred rand note close-up
South Africa’s central bank has raised its repo rate by a total 275 basis points so far in 2022 – Photo: Kevin Shine /

The South African Reserve Bank (SARB) has shown no signs of veering off course from its hawkish monetary policy stance. The central bank intends to combat persistently high inflation despite the country’s economic growth starting to slow.

Since it embarked on its tightening cycle in November 2021, South Africa’s central bank has hiked its benchmark repo rate six consecutive times by a total 275 basis points (bps). The SARB’s most recent hike in September took the rate to 6.25%.

However, the country’s gross domestic product (GDP) growth has continued to slow amid high interest rates and external economic headwinds.

South Africa’s national currency, the rand (ZAR), has declined against the US dollar (USD) throughout 2022, with the USD/ZAR rising from roughly 14.5 in early May to near 17.2, as of 18 November.

USD/ZAR live exchange rate

What lies ahead for the South African economy as the country’s policymakers continue on a path of monetary contraction? Here we take a look at South Africa’s interest rate forecast for the next 5 years?

How are interest rates set in South Africa?

Interest rates in South Africa are set by the South African Reserve Bank (SARB). The SARB was established as the country’s central bank in 1921, making it the oldest institution of such kind on the African continent.

SARB's initial mandate was to restore and maintain order in the issue and circulation of domestic currency, as well as to return the gold standard to its pre-World War I rate of exchange.

The bank’s mandate had gone through several modifications, but it was not until 1990 that it accepted a formal mission statement. It mandated the bank to protect the internal and external value of the rand (ZAR), South Africa’s national currency.

In 2000, South Africa adopted an inflation-targeting monetary policy framework, with a goal to keep the consumer inflation rate in the 3% to 6% range.

Between 1998 and 2022, the repo rate – the cost for banks to borrow reserves from the SARB for one week – was the bank's main monetary policy tool.

In 2022, the SARB changed its monetary policy framework – the key policy rate became the rate banks earn for depositing qualifying funds at the SARB overnight. The new framework is referred to as a tiered-floor system

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SARB interest rate history

The SARB maintained its key rate at 3.50% to support South Africa’s economy during the Covid-19 pandemic from July 2020 to November 2021. The central bank initiated four rate cuts in the first half of 2020, lowering the rate from 5.25% in March to 3.50% in July 2020.

The central bank began its current tightening cycle on 18 November 2021, raising the South Africa interest rates to 3.75%. In its two meetings in January and March of 2022, the bank adopted a less aggressive approach, opting for two 25bps hikes, which lifted the rate to 4.25% by March 2022.

South Africa interest rate

The annual Consumer Price Index (CPI) in South Africa rose to 5.9% in December 2021 – the highest annual increase since March 2017, according to Statistics South Africa. The pace of price increases slowed to a 5.7% in February, but rising food and fuel prices increased the pressure on monthly CPI inflation.


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The bank then began to ramp up policy tightening, raising the interest rate by 50bps in May 2022 and increasing the policy rate to 4.75% as the inflation remained near the SARB’s upper target of 6%. Soaring commodities and energy prices due to Russia’s invasion of Ukraine had spilled over to domestic prices.

In the two consecutive meetings in July and September, the SARB lifted South Africa interest rates by 75bps each time, raising the benchmark rate to 6.25% in September as inflation soared to 13-year highs.

The rand’s depreciation against the US dollar has also added upward pressure on inflation. The US dollar has strengthened against other currencies due to aggressive monetary tightening by the US Federal Reserve (Fed), with investors piling into the safe-haven currency amid risk-off sentiment.

As of 18 November, the USD/ZAR was trading at 17.26, having gained over 9% year-to-date (YTD) due to the USD’s rise. The dollar’s rise has since been softened by lower-than-expected US inflation figures, and expectations that the Fed will soften its hawkish monetary policy stance, providing relief for the rand.

Factors to shape interest rates in South Africa

Inflation, economic growth, commodity prices, and the actions of other central banks around the world – primarily the US Federal Reserve (Fed) – are all factors that can affect interest rates in South Africa in the coming years.

South Africa's annual inflation rate has eased for the second straight month to 7.5% in September from 7.6% in August and 7.8% in July, according to data from Statistics South Africa. The figures matched market expectations but were still well above the upper limit of the SARB’s target range of 3%-6%.

In its September statement, SARB’s Monetary Policy Committee kept the CPI forecast unchanged at 6.5% in 2022 but lowered it to 5.3% in 2023 from 5.7% projected earlier, and 4.6% in 2024 from 4.7% projected before. Core inflation estimates were left unchanged for this year but revised slightly down to 5.4 in 2023 and 4.8% in 2024.

GDP growth projections were cut to 1.9% in 2022 from the previous forecast of 2%, but raised to 1.4% in 2023 and 1.7% in 2024.

Projected South Africa interest rates in 5 years

On 16 November, Investec chief economist Annabel Bishop said that although SARB delivered a 75bp increase the last time, this time around it could deliver a 100 basis points lift on elevated inflation figures. She noted:

“South Africa’s inflation rate at the retail level has climbed to 6.9% year-on-year from figures published by Stats SA today for September from 3.7% year-on-year for the first quarter. SARB will be wary, balancing still high inflation with weak economic growth in the third quarter, we expect a 100 basis points increase on balance.”

Bishop’s view was not shared by Johann Els, chief economist at pan-African investment Group Old Mutual, who saw an easing in his South Africa interest rate predictions.

Cited by Independent Online in mid-November, Els said that the recent downside surprise in US inflation had brought markets a sigh of relief, as the Fed’s likely policy pivot has become somewhat more transparent. The economist added that global inflation has peaked and is heading lower:

“There are increasing signs that global inflation is in peak territory and headline inflation rates should roll over soon, even as core inflation remains sticky for a while longer.”

However, according to Els, inflation will take some time to get back within the SARB’s target and therefore interest rates are not going back to zero any time soon. As a result, Els said that SARB’s interest rates are likely to peak soon and then flatten out through 2023.

“We are looking at another 50 basis points in rate hikes in this cycle, maybe 50 basis points in November or 25 basis points each in November and January. That will likely be the end of this upcycle.”

The economist did not provide a South Africa interest rate forecast beyond 2023.

In their interest rate forecast for South Africa, panellists surveyed by economic analysis provider Focus Economics saw the SARB repo rate ending 2022 at 6.37% and 2023 at 6.63%.

Meanwhile, in its long-term South African interest rate prediction, data aggregator TradingEconomics said the SARB’s projected interest rate would trend “around 7.50 percent in 2023 and 6.50 percent in 2024”, according to the website’s econometric models as of 18 November.

Final thoughts

Note that analysts’ and algorithm-based short-term and long-term interest rates forecasts for South Africa may be wrong as the future holds many uncertainties. You should always conduct your own due diligence before trading, looking at the latest news, a wide range of commentary, technical and fundamental analysis.

Remember, past performance does not guarantee future returns. And never trade money you cannot afford to lose.


Is the interest rate going up in South Africa?

The South African Reserve Bank has raised its key interest rate six times since late 2021, and analysts are factoring in further rises in the next monetary policy announcements. Note that their predictions may be wrong.

Where will interest rates be in 5 years?

It is impossible to say for sure due to the dynamic and volatile nature of economies and markets. Data aggregator TradingEconomics saw the SARB’s projected interest rate trending “around 7.50 percent in 2023 and 6.50 percent in 2024” according to the website’s econometric models at the time of writing. Longer-term interest rate predictions in South Africa were unavailable as of 18 November 2022 – both from analyst and prediction websites. Remember that analysts and prediction websites can be wrong in their forecasts. Always do your own due diligence before trading or investing. And never invest money that you cannot afford to lose,

How high will South Africa interest rates go?

Investec chief economist Annabel Bishop suggested that the SARB will hike interest rates by 100 basis points at its next meeting, bringing the key rate to 7.25%. Johann Els, chief economist at pan-African investment Group Old Mutual, said that the rate will peak at 6.75% during this cycle. Bear in mind that analysts’ forecasts can be wrong. Always do your own research before trading or investing.

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