Africa-Press – South-Africa. The inflation print for September, which showed a slight rise from the month before, validates the Reserve Bank’s cautious interest rate stance.
Despite some punters pricing in an interest rate cut for later this year, further reduction is unlikely as the Reserve Bank aims to keep inflation as close to 3% as possible.
PPS Investments portfolio manager Reza Hendrickse explained that September’s CPI outcome confirms South Africa’s inflation remains well-anchored.
In September, the CPI rose slightly to 3.4% from 3.3% in August. On a month-to-month basis, prices increased by 0.2%, following a 0.1% decline in August.
This comes after the Reserve Bank’s Monetary Policy Committee (MPC) kept rates unchanged at its last meeting in September. This decision was met with some criticism.
Critics argued that with inflation at its lowest level in years and South Africa’s economy and consumers desperately in need of a boost, another interest rate cut would have been justified.
Prior to the September pause, the MPC had implemented 125 basis points worth of cuts, starting in September 2024.
Many experts expected this to continue, as inflation is expected to average around 3.4% in 2025. Therefore, the MPC’s decision to keep rates unchanged was considered overly cautious.
However, Hendrickse said September 2025’s inflation print confirms that inflation remains well-anchored and validates
“The environment validates the SARB’s cautious hold stance, in contrast to market expectations that continue to price in further gradual easing into 2026,” he said.
He explained that the latest inflation print aligns with the Reserve Bank’s September MPC expectation that inflation would stabilise near the lower end of the 3% to 6% historic range before a modest rise toward 4% in the fourth quarter.
At the MPC’s most recent meeting, Reserve Bank Governor Lesetja Kganyago said they expect headline inflation to average 3.4% in 2025, and 3.6% next year, before reverting to 3% during 2027.
The governor explained that the MPC would like to see how the cuts it has already implemented will affect the economy, how expectations evolve, and how inflation risks are resolved.
The MPC noted that while underlying inflation remains contained near 3%, inflation expectations must be anchored at or below 4% before further easing is considered.
The graph above shows the trends in South Africa’s inflation and interest rates between May 2021 and September 2025.
Targeting 3%
While the Reserve Bank has often leaned more hawkish in an attempt to manage South Africa’s inflation, this task has become increasingly pressing over the past few months.
This is because the Reserve Bank and National Treasury are in the process of lowering South Africa’s inflation target for the first time in over two decades.
The Reserve Bank would prefer an official target change to 3%, which is lower and narrower than the current target range of 3% to 6%.
The MPC has already announced that it will now prefer for inflation to be anchored around the lower end of this range, 3%, although this is not an official change.
The central bank has been a staunch advocate for lowering South Africa’s inflation target, saying it could bring immense benefits to the country.
This includes faster economic growth, lower debt-servicing costs, and reduced cost-of-living pressures.
However, in order to achieve this, South Africa will need to experience some short-term pain in the form of higher interest rates to ‘lock in’ lower inflation.
This is why the Reserve Bank remains hawkish about ensuring that South Africa maintains its current low inflation levels and why September’s inflation print of 3.4% can be considered “high” even though it is within the official range.
Keeping inflation low means the central bank will not need to keep interest rates as high for as long to reach its new target, as CPI would already be at or close to the new target.
In fact, some experts have warned that South Africa could miss out on its chance to change the country’s official target range while inflation is low.
Standard Bank chief economist Goolam Ballim previously explained that implementing this target change in a low-inflation environment would be ideal.
“I would be inclined to argue that we have a window of opportunity that is going to close soon for lowering the inflation target without much negative impact,” Ballim said.
“If the target was lowered now, the impact of the shift of expectations towards the new target would be very, very small because of the low level of inflation.”
Allan Gray investment analyst Sandy McGregor recently explained that the Reserve Bank is correct in saying South Africa has been presented with an opportunity it should not miss.
“The journey to 3% inflation could be volatile. However, if inflation stabilises at about 3% the entire structure of interest rates can reprice lower,” he said.
“South Africa is trapped in economic stagnation. The positive economic benefits arising from lower rates would contribute to getting the economy going again.”
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