- Decision
- Lower
- Rate change
- 25 bps
- repurchase rate
- 8%
The Monetary Policy Committee of the South African Reserve Bank reduced the policy rate by 25 bp with effect from 31 January 2025, as four of six members judged that decelerating inflation and an expected fourth-quarter growth rebound justified a modest easing despite a more uncertain global backdrop. Headline CPI averaged 4.4 % in 2024 and fell to 3.0 % in December, is projected to remain in the lower half of the 3–6 % target until mid-2025, and then return to the 4.5 % midpoint; nonetheless, inflation risks are tilted upward. After a third-quarter contraction driven by weak agriculture, output is seen recovering, closing the output gap from the current quarter and supporting potential growth toward about 2 % by 2027, with growth risks deemed balanced. A shift to weaker-rand assumptions has had limited impact on the inflation forecast, although the committee noted the currency’s vulnerability to a strong USD and modelled a trade-war scenario that could push it near ZAR 21 per USD and lift inflation to 5 %. Globally, higher-for-longer US rates, sticky core inflation in major economies and China’s slowdown reinforce caution. While the central bank’s Quarterly Projection Model suggests a gradual drift of rates toward roughly 7.25 % in coming years, the MPC reiterated that future moves will be decided meeting by meeting, with no pre-commitment and a continued focus on anchoring inflation expectations.
Rate evolution
Over the period, the South African Reserve Bank lowered the policy rate by 75 basis points from 7.50% to 6.75%, with two early cuts, a September pause, one further reduction in November and then holds in January and March as easing became more cautious, before raising it by 25 basis points to 7% in May 2026, holding in July and raising it by another 25 basis points to 7.25% in September. The initial easing reflected inflation below 3%, core inflation near the bottom of the target range, a stronger rand, lower oil prices, softer inflation expectations and weak domestic growth, even as the Monetary Policy Committee warned that trade tensions and currency weakness could produce a stagflationary shock, while increasingly framing decisions during 2025 around securing inflation at 3%, first by aiming for the bottom of the 3-6% range and then, from November, under a formal 3% target with a tolerance band of plus or minus 1 percentage point.
In January and March it kept the rate at 6.75% as inflation stayed near target and expectations continued to fall, but the Middle East shock shifted inflation risks to the upside, pushed back projected cuts and prompted the bank to stress second-round effects, downside risks to growth and meeting-by-meeting decisions. By May, with hopes for a quick end to the crisis fading and South Africa’s growth forecasts lowered, inflation had risen to 4% in April from 3.1% mostly because of higher energy costs, services inflation accelerated to 4.6%, and the forecast showed headline inflation averaging 4.4% in 2026 and 3.7% in 2027 before returning to the 3% target in 2028, leading the committee to raise the policy rate to 7% effective from 29 May 2026. In July it held the policy rate at 7%, judging that the previous increase had made the stance somewhat restrictive and appropriate for the time even as the Middle East crisis entered a more volatile phase, oil prices rebounded, inflation remained above target, underlying pressures strengthened and downside risks to growth persisted.
In September, the committee unanimously raised the policy rate by 25 basis points to 7.25%, effective from 25 September 2026, as escalating conflicts intensified a persistent global supply shock, fuel prices rose again, global rates moved higher, services inflation remained elevated and longer-run expectations stayed around 4%, with headline inflation likely to be above 5% later in 2026 and early in 2027 and inflation risks to the upside despite a 0.2% second-quarter contraction and downside growth risks.