- Decision
- Maintain
- Rate change
- 0 bps
- repurchase rate
- 7%
The South African Reserve Bank’s Monetary Policy Committee left the repo rate unchanged at 7.0 percent, with four of six members favouring a hold and two calling for a 25 bp cut, judging that balanced risks to both growth and inflation warrant further assessment of the 125 bp of easing delivered since September last year. While no operational changes were announced, the committee noted second-quarter GDP growth surprised to a two-year high and lifted its 2025 growth forecast to 1.2 percent even as investment remains subdued, though credit extension is showing improvement. Headline CPI has risen to 3.3 percent—still near the lower bound of the 3–6 percent target—and is projected to peak around 4 percent in coming months before averaging 3.4 percent in 2025 and 3.6 percent in 2026, with risks deemed balanced despite higher assumed electricity price inflation of almost 8 percent. A stronger rand and contained oil prices underpin the external outlook, although higher long-term global yields linked to elevated debt and inflation risks temper the otherwise supportive backdrop of recent US dollar weakness and policy rate cuts in the United States and United Kingdom. The committee’s model continues to envisage a gradual easing path as inflation converges to its 3 percent preference, but it stresses that future moves will be decided meeting by meeting, guided by incoming data, the evolution of expectations and the balance of risks, while underscoring the importance of swift agreement on a new, lower inflation target to entrench credibility.
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.