The question of whether South Africa will see further cuts to interest rates in the coming months remains highly uncertain, despite the recent release of inflation figures that came in lower than expected. Economists and market analysts are currently divided on the Reserve Bank’s next move, with both global dynamics and domestic conditions introducing elements of unpredictability. In fact, the coming meetings are shaping up to be some of the most finely balanced policy debates in years, with the stakes high for households, businesses, and investors alike.
Key Takeaways
- Lower-than-expected inflation: South Africa’s August inflation came in at 3.3%, creating room for possible rate cuts, but the Reserve Bank remains cautious.
- Stricter inflation target: The SARB’s move towards a 3% target, combined with expectations of higher inflation into 2026, makes further cuts less certain despite market hopes.
- Diverging forecasts: While Investec sees scope for major easing, consensus predicts a hold, leaving the outlook finely balanced with big implications for growth, debt, and consumer confidence.
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Lower Inflation Sparks Hope for Cuts
August’s inflation data surprised many observers when it came in at 3.3%, significantly below market forecasts of a rise to 3.6%. This unexpected cooling in consumer prices immediately fuelled discussions that the South African Reserve Bank (SARB) might be able to proceed with one, or even two, additional interest rate reductions before the end of 2025. The lower print was seen as a rare piece of good news for consumers battered by years of stubbornly high living costs, igniting cautious optimism that relief at the tills and on debt repayments might be closer than previously thought.
The case for such cuts has been bolstered further by the decision of the United States Federal Reserve to reduce its own rates at its meeting held on Wednesday, 17 September. This move by the Fed has provided South Africa with additional space to consider its own loosening measures, given the widened rate differential.
Investec’s Chief Economist, Annabel Bishop, has previously highlighted that weaker inflation coupled with this differential makes a compelling argument for substantial easing in borrowing costs. Her earlier forecasts even suggested that the SARB could trim the repo rate by 25 basis points in September, followed potentially by another 25-basis-point reduction during its final policy committee meeting of the year in November. For South African households juggling mortgages, car loans, and credit card balances, even these modest cuts could translate into meaningful monthly savings.
Market Consensus Still Points to a Hold
Despite these more optimistic projections, a large portion of the economic community remains cautious. Many analysts have warned South Africans not to assume that lower inflation automatically guarantees cheaper borrowing. According to a broad survey conducted by Reuters, most economists still anticipate that the central bank will maintain its current repo rate at 7.00%, at least for the September meeting.
This reflects the SARB’s reputation for conservatism and its laser-like focus on credibility, even if it means keeping the brakes on economic growth for longer.
The reasoning behind this conservative outlook is that, while headline inflation was unexpectedly subdued in August due mainly to lower fuel and food costs, forecasts still point to a rebound in price pressures in the coming months. Independent economist Elize Kruger has highlighted that inflation expectations remain high and are projected to climb towards 4.2% by December 2025. This would likely discourage policymakers from reducing rates further at this stage. Her view reflects a growing concern that the current relief may be temporary, with global oil volatility, food price shocks, and currency swings still posing risks.
Rising Risks and the SARB’s Target
Arthur Kamp, Chief Economist at Sanlam Investments, has echoed this sentiment by stressing that consensus forecasts continue to show inflation drifting upwards well into 2026. He described the present low levels as part of a cyclical trough rather than a long-term trend. This cautionary stance highlights how fragile the inflation outlook is, where one or two external shocks could quickly undo the progress of recent months.
Another complicating factor is the Reserve Bank’s preference for a stricter inflation target of 3%, which is below the current official midpoint target of 4.5%. Although headline inflation in August stood at 3.3%, this still remains above the SARB’s newly preferred threshold. Moreover, the bank has admitted that reaching a consistent level of 3% would take considerable time.
The proposed new target has not yet been formally adopted, as discussions with the Cabinet and relevant government stakeholders are still under way. National Treasury continues to frame its budget assumptions on the officially recognised 4.5% target. Nonetheless, the SARB has already begun using the 3% figure in its internal modelling and has applied it in its last two policy meetings, signalling its influence in decision-making. This quiet but deliberate shift has already sparked debate in financial circles, with critics arguing that it risks suffocating an economy still struggling to reignite growth.
Diverging Views from Investec
While the majority consensus points towards a hold in rates, Investec’s projections differ markedly. The bank’s economists expect inflation to average precisely 3.0% year-on-year across both 2026 and 2027, aligning directly with the likely new target. This would, in their assessment, leave considerable room for policy loosening.
Their argument rests on the view that occasional price spikes, such as the uptick seen in July, should be regarded as temporary and not decisive. Instead, the Reserve Bank typically aims at future inflation trends rather than short-term fluctuations. From this perspective, with consumer demand remaining extremely subdued, the case for additional cuts appears strong. Bishop has pointed to average inflation of 3.2% in 2025 and has argued that inflationary pressures more broadly remain weak, with no signs of material acceleration on the horizon. This outlook frames South Africa’s current situation as one of opportunity: a rare window where monetary policy could be used to stimulate growth without fuelling runaway prices.
Calls from the Property Sector
The Investec analysis has found particular resonance in South Africa’s property sector, where real estate companies have long lobbied for a more aggressive cycle of rate reductions to stimulate growth and improve affordability in housing. Agents and developers argue that the industry has been suffocating under high borrowing costs, with potential buyers unable to access mortgages and developers shelving projects due to financing hurdles.
A Year into the Cutting Cycle
It is worth noting that the SARB already initiated a rate-cutting cycle a year ago, in September 2024, and has since delivered 125 basis points worth of reductions over a 12-month period. These moves have gradually lowered the repo rate from 8.00% to 7.00%, and the prime lending rate from 11.50% to 10.50%.
The timeline of policy adjustments has been as follows:
| Date | Repo Rate | Prime Rate | Adjustment Details |
|---|---|---|---|
| September 2024 | 8.00% | 11.50% | Cut of 25 basis points |
| November 2024 | 7.75% | 11.25% | Cut of 25 basis points |
| January 2025 | 7.50% | 11.00% | Cut of 25 basis points |
| March 2025 | 7.50% | 11.00% | No change (maintained) |
| May 2025 | 7.25% | 10.75% | Cut of 25 basis points |
| July 2025 | 7.00% | 10.50% | Cut of 25 basis points |
| September 2025 (expected) | 7.00% or 6.75% | 10.50% – 10.25% | Uncertainty whether SARB will hold steady or cut further |
This cautious yet steady sequence of cuts has shown the SARB’s willingness to ease when conditions allow, but also its reluctance to be swayed by short-lived numbers. Each move has been carefully calibrated, reflecting a balancing act between stability and stimulus.
Outlook Remains Unclear
The ultimate decision therefore rests on how the SARB balances the immediate evidence of softer inflation with the expectation of future price increases, as well as its gradual transition towards a more ambitious 3% target. On one hand, the data supports the case for continued easing, particularly given weak domestic demand and pressure from sectors such as property. On the other, the risk of inflation climbing again in the medium term, combined with the bank’s cautious institutional approach, may persuade policymakers to pause and reassess. What is certain is that whichever way the MPC leans in September, its decision will reverberate across the economy, shaping investment, consumer spending, and South Africa’s fragile growth trajectory in the year ahead.
Conclusion
South Africa finds itself at a pivotal moment where the tug-of-war between easing economic pressure and guarding against future inflation will define the Reserve Bank’s next moves. While falling inflation and international trends present a strong case for cutting rates further, persistent risks such as volatile global energy prices, currency fluctuations, and the adoption of a stricter inflation target leave policymakers with little room for complacency. The coming decisions will not only shape the affordability of credit for households and businesses but also set the tone for whether South Africa can unlock much-needed economic growth without sacrificing hard-won price stability.
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