Good news on the cards for motorists in South Africa this week

South African car owners can look forward to lower finance payments from the end of January onwards courtesy of an anticipated interest rate reduction.

The South African Reserve Bank (SARB) is expected to further reduce interest rates this Thursday, 30 January, following two successive rate cuts in September and November 2024, respectively.

This comes after inflation figures registered 3.0% in December, below the SARB’s upper-bound target of 4.5%.

“With inflation well below the SARB’s 4.5% target and expected to remain relatively subdued, we believe there is room for further monetary policy easing,” said Nedbank economists.

The group thus expects a 25 basis point (bp) cut this week, with a more substantial reduction being unlikely due to emerging risks in the market.

Key among these is a slightly higher inflation trajectory for the current year. Nedbank expects inflation to rise in the coming months towards an average of 4% owing to mild upward pressure from food and fuel prices.

The course of electricity tariffs also remains unresolved, with the national energy regulator delaying its decision on Eskom’s proposed hikes to the end of January.

Macroeconomic uncertainties such as Donald Trump’s presidency in the United States are likely to impact the domestic market as well.

Since Trump’s electoral victory in November 2024, the rand has come under renewed pressure against a resurgent US dollar.

“The markets argued that Trump’s policy agenda would sustain US economic outperformance albeit at the expense of higher inflation, which would probably lead to a more hawkish Federal Reserve (Fed) and fewer US interest rate cuts,” said Nedbank.

“Consequently, investors expected interest rate differentials to shift in favor of the US dollar.”

Global oil prices have also increased in recent weeks, driven by higher seasonal demand caused by a colder-than-usual winter in the Northern Hemisphere.

Owing to these factors, the rand is poised for another highly volatile year.

Even so, domestic rate cuts still trail behind the United States, where the Fed has already reduced its policy rate by 100bp, while the SARB has only eased by 50bp.

More importantly, monetary policy is still restrictive, with real interest rates rising to just short of 5%.

“We, therefore, see room for more moderate policy easing. We forecast only two more rate cuts of 25bp each in 2025,” said Nedbank.

The first is expected this week, 30 January, followed by another in March.

11.25% vs 11.00%

The table below shows how the expected new interest rate of 11.00% will impact your monthly car finance contract, based on a 72-month deal with no deposit or balloon payment: