Major blow for interest rate cuts in South Africa
South Africa’s latest inflation numbers, while generally in line with market expectations, may dim the hopes of some Reserve Bank bulls who expect interest rate cuts in November.
Stats SA published the latest inflation data for September, with the headline rate coming in at 3.4% year-on-year.
This was slightly higher than the bulls, who anticipated a 3.3% print, but lower than market consensus, which pegged the rate at 3.5%.
The real issue with the inflation numbers is that they confirm an upward swing in price pressure after the previous month’s data delivered a surprising drop.
This has cemented analysts’ view that inflation will be heating up in the coming months, pushing further away from the Reserve Bank’s preferred target of 3%.
Reserve Bank governor Lesetrja Kganyago this week said that the central bank is “deadly serious” about pursuing the target, and monetary policy will align with that goal.
While the 3% inflation target is, for now, a “preferred” one, markets anticipate an announcement from the National Treasury—possibly at the medium-term budget—confirming the rate and making it official.
Given this policy pressure, there are now doubts that the Reserve Bank’s Monetary Policy Committee (MPC) will cut rates in 2025, with the timing of expected cuts in 2026 also now in the air.
According to economists at Nedbank, the forecast is for inflation to trend gradually higher to around 4% by the end of the year, because of base effects and elevated meat prices.
Other price pressures, like electricity prices, are also a concern, they said.
“NERSA’s approval of tariff hikes of 12.7% for 2025/26 and 8% for the following two years will filter through to services inflation,” the group said.
This should be tempered by lower fuel prices, which will help offset the inflationary effects of rising food and electricity costs, and a stable rand.
However, inflation is still expected to rise, even if it is muted.
Current projections are for an average of 3.3% in 2025, moving up to an average of 4% in 2026 and then 3.5% in 2027.
This aligns with the SARB’s own projections that it will take around two years for inflation to stabilise around the new target.
Interest rate coin flip for November 2025
Forward rate agreements — used to speculate on borrowing costs — are still pricing in a 60% chance of a cut at the MPC’s last meeting of the year.
However, more than a few economists had already nixed the chances of a final rate cut in 2025, even before the latest inflation data.
Analysts polled by Reuters are more optimistic, noting that the inflation pressure is unlikely to spook the Reserve Bank too much.
A stronger rand exchange rate, falling inflation expectations and a sluggish economy could all encourage the SARB to ease monetary policy further, they said.
General consensus is that the South African rate-cutting cycle has not ended, just paused.
According to Investec chief economist Annabel Bishop, a 25bp cut in the repo rate before the close of 2025 is almost fully factored in by financial markets, including the SARB’s own forward rate curve.
Market views are for another 50 basis points to be cut by the end of 2026, with some outlier projections pointing to a higher 75 basis points being cut if inflation moves to the 3% target sooner.
Over the past year, the MPC has cut a total of 125 basis points off the interest rate. The last meeting was a hold, with a 4-2 vote in favour of that position.
Notably, the two counter votes were in favour of a 25 basis point hike, showing there is interest in cutting. However, this may now be dashed.
The MPC will meet and announce its final policy decision for the year on 20 November 2025.
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