Finance

It’s going to be a close call for interest rates in South Africa

Staff Writer

 ·18 Sep 2025

While South Africa’s surprisingly lower inflation in August has set the stage for further interest rate cuts in the country, economists and analysts don’t see the Reserve Bank’s next move as clear-cut.

This is because there are numerous global and local factors at play, most of which are not set in stone and present clear risks to inflation in the coming months.

Following the release of August’s inflation data, which came in cooler at 3.3% against expectations of a rise to 3.6%, talk of one or even two more interest rate cuts in 2025 has cropped up.

This has been supported further by the United States Fed cutting rates at its meeting on Wednesday (17 September), offering room for the South African Reserve Bank to follow suit.

Investec Chief Economist, Annabel Bishop said that softer inflation and the wider rate differential between the US and South Africa should bring “substantial interest rate cuts”.

She previously posited that the SARB could cut rates by 25 basis points in September and possibly by another 25 basis points in the MPC’s final meeting in November.

However, other economists and analysts have cautioned South Africans against getting their hopes up, with the wider consensus being that the SARB will still hold rates, even with the weaker inflation.

Economists polled by Reuters widely expect the central bank to keep the rate unchanged at 7.00%.

While headline inflation unexpectedly slowed in August due to softer fuel and food prices, the view is that inflation is still expected to tick higher in the coming months.

“Inflation expectations are still quite a bit higher, and the upward trend towards 4.2% in December 25 should keep the SARB from cutting interest rates at this meeting,” said independent economist Elize Kruger.

Arthur Kamp, Chief Economist at Sanlam Investments, agrees with this, noting that consensus forecasts suggest an upward drift in inflation into 2026, and that the current lows are in a trough.

The other factor that would keep the SARB from cutting rates is its preferred 3% inflation target.

Even at 3.3%, inflation is higher than the target, and by the central bank’s own admission, getting to that target will take some time.

Kamp noted that the lower inflation target has not been finalised or confirmed, pending the completion of discussions with the cabinet and relevant stakeholders.

So while it has an impact on the MPC’s decisions as a “preferred target”, National Treasury’s budgets are still being built around the official target of 4.5% for now.

Nevertheless, the SARB has been building into a 3% model and used it at its previous two meetings, making it an impactful factor in determining the path forward.

Not everyone agrees

However, despite the market consensus pointing to a hold because of an expected upward trend in inflation and the new inflation target being factored in, Investec’s model disagrees.

Bishop said that inflation is expected to average 3.0% year-on-year both in 2026 and 2027, in line with the (likely) new target.

She said any increases, like those seen in July, are expected to be “looked through” by the SARB, which ” in any case targets future inflation instead.”

“As such, the MPC has ample room to cut interest rates, which are highly restrictive while demand is very weak.”

The economist noted that inflation is expected to average 3.2% y/y this year, adding that inflationary pressures are particularly weak.

She added that there is little evidence of a pick-up in the foreseeable future, and so further cuts are urgently needed.

This forecast also finds support in the property sector, where realty groups have long been calling on the MPC to adopt a more aggressive rate-cutting stance to ignite growth.

The SARB started its rate-cutting cycle in September 2024 and has delivered 125 basis points of cuts over the past 12 months.