US and SA Central Banks Likely to Hold on Rates This Week

Both the American and South African central banks are likely to hold on interest rates this week.

This is the view of Bheki Mahlobo, the economics and policy editor at The Common Sense.

Mahlobo says that he believes both central banks will hold on cutting rates when they hold their respective meetings this week, although he expects both banks to resume cutting later in the year.

US interest rate outlook

According to Mahlobo, the United States (US) Federal Reserve will most likely keep interest rates unchanged this Wednesday, maintaining the federal funds target range at 3.50% to 3.75%.

Consumer inflation in America rose at the same pace in December as in November, holding at 2.7%.

The central bank’s preferred inflation gauge, core personal consumption expenditure (PCE), edged higher to 2.8% from 2.7% in November, still above the Fed’s 2% target. Central banks use higher rather than lower interest rates to tame inflation.

Further supporting the case for a hold, the US economy grew at an annualised rate of 4.4% in the third quarter of 2025, up from 3.8% in the second quarter of that year, marking the strongest GDP expansion since the third quarter of 2023. When an economy grows relatively strongly, central banks see less need to cut rates to stimulate economic activity by reducing the cost of borrowing money.

SA interest rate outlook

Mahlobo expects the South African Reserve Bank (SARB) to keep interest rates unchanged at 6.75% in its first policy meeting of 2026 this Thursday.

The decision reflects a cautious easing cycle and a desire to preserve a favourable interest rate differential with the US. With the Federal Reserve likely to hold, the SARB is unlikely to move ahead of global peers.

The decision is further supported by a modest uptick in consumer inflation, which rose to 3.6% in December from 3.5% in November, pushing inflation closer to the upper end of the SARB’s target band.

However, Mahlobo thinks that looking beyond the January meeting, conditions for further easing remain in place.

Average South African inflation for 2025 declined to 3.2%, down from 4.4% in 2024 and below the SARB’s 3.3% forecast, marking the lowest annual average in more than two decades.

The rand has also strengthened by 14.0% in 12 months, trading at R16.02 to the dollar and in line with Mahlobo’s forecast that the rand will trade at R16.00 to a dollar this year. When the currency strengthens, imported goods become cheaper, reducing pressure on inflation.

In addition, global fuel prices are down more than 20% over the past 12 months, easing import inflation pressures on South Africa.

For the above reasons Mahlobo’s view is that the SARB’s rate cutting cycle continues from March, and he expects 50 basis points worth of rate cuts in 2026.

From both a global and local perspective the rates outlook for 2026 will be positive for consumers and economies, thereby providing support to bond and equity markets.