- Decision
- Maintain
- Rate change
- 0 bps
- repurchase rate
- 6.75%
The Monetary Policy Committee of the South African Reserve Bank left the repo rate unchanged at 6.75 percent at its January 2026 meeting, judging the current stance “moderately restrictive” but appropriate as headline inflation, at 3.6 percent in December after a 3.2 percent average in 2025, is expected to ease back toward the 3 percent objective on the back of a stronger rand and lower oil prices while inflation risks remain balanced and growth momentum has improved. This pause follows a cumulative 75-basis-point easing between May and November 2025. The MPC noted four consecutive quarters of economic expansion, led by household consumption growth of more than 3 percent in 2025, and projects GDP to edge toward 2 percent over the medium term. Goods inflation has cooled to 3 percent and core goods to 1.2 percent, though services inflation is still above 4 percent; inflation expectations have fallen to record lows. Externally, the rand’s appreciation and softer oil prices have reduced near-term price pressures even as global markets remain volatile amid heightened geopolitical tensions, safe-haven flows into gold and concerns over an AI-driven asset bubble. The committee’s Quarterly Projection Model continues to envisage gradual cuts, with rates reaching neutral in 2027, but policymakers reiterated that future moves will be decided meeting by meeting in line with data and risk assessments.
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.