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The United States (US) Federal Reserve (Fed), European Central Bank (ECB), and Bank of Japan (BOJ) are all expected to hold interest rates steady at meetings this week, following increases in September. However, The Common Sense expects all three to raise rates again in December as inflation remains elevated. For South Africa, this could mean higher repayments on mortgages, vehicle finance, and business loans before the end of the year.

The Fed meets today and tomorrow and is expected to hold its benchmark range at 3.75% to 4.00%. Under its chairman, Kevin Warsh, the Fed has emphasised its determination to return inflation to its 2.00% target, providing a useful indication of where interest rates may be heading.

The key measure to watch is the core Personal Consumption Expenditures price index, which the Fed closely follows because it excludes volatile food and energy prices, giving a clearer picture of underlying inflation. It stood at an annual rate of 3.00% in August, above the Fed’s target. With inflation remaining elevated, a further 25-basis-point increase is expected in December, taking US interest rates to between 4.00% and 4.25%.

The ECB faces similar pressures. Eurozone inflation increased from 3.20% in August to 3.80% in September, driven largely by higher energy prices. The ECB targets inflation of 2.00%, but expects it to average 3.00% in 2026 and 2.50% in 2027. Having raised rates in September, the ECB is expected to hold its deposit rate at 2.50% on Thursday while assessing the impact of that increase. With inflation forecast to remain above target, another increase is expected in December, taking the rate to 2.75%.

Japan presents a different picture. For decades, the BOJ kept interest rates exceptionally low to combat deflation, a sustained decline in prices that discouraged spending. More recently, rising wages, a weaker yen, and higher import costs have pushed inflation to 2.10% in September, slightly above the BOJ’s 2.00% target and well above its average of roughly 1.20% over the past decade. This gives the BOJ greater scope to move away from its historically low interest rates. Markets are pricing in a further 25-basis-point increase in December, which would take its policy rate to 1.50%.

These developments matter for South Africa because higher interest rates in major economies make investments in those countries more attractive. This can draw capital away from South Africa, weakening the rand and making imported goods, particularly fuel, more expensive. Higher import costs, in turn, add to inflation and increase pressure on the South African Reserve Bank (SARB) to raise interest rates.

South Africa is already facing rising price pressures of its own. Headline inflation reached 4.50% in September, while core inflation stood at 4.00%, both above the SARB’s 3.00% target. October’s inflation reading, due in mid-November, is expected to approach 5.00% and could exceed that level following sharp increases in petrol and diesel prices.

This leaves the SARB with little room to manoeuvre. Its final interest rate meeting of 2026 takes place on 19 November, ahead of the expected December increases by the major global central banks.

The Common Sense forecasts a 25-basis-point increase in the SARB’s repo rate to 7.50% in November to contain inflation and protect the purchasing power of the rand.