Africa-Press – South-Africa. Economists are not expecting the Reserve Bank’s Monetary Policy Committee (MPC) to announce an interest rate cut tomorrow, as South Africa’s inflation remains above the committee’s new preferred target.
While South Africa’s inflation remains within the Reserve Bank’s official 3% to 6% target range, with August’s reading at 3.3%, the MPC is expected to remain hawkish.
KPMG South Africa lead economist Frank Blacmore explained that, while July and August’s prints of 3.3% and 3.5% are within the official target range, they are above the MPC’s preferred target of 3%.
The Reserve Bank has been in talks with the National Treasury to determine whether South Africa should lower and narrow its inflation target.
South Africa’s current target has been in place since 2000, when the Reserve Bank first adopted inflation targeting.
However, this target has not been changed since and is now far higher and wider than many of South Africa’s emerging market peers.
Ideally, Reserve Bank Governor Lesetja Kganyago has said he would prefer a 3% target, which would put South Africa more in line with its peers and result in lower inflation and interest rates over the long term.
This would not only lead to better economic growth but also go a long way in easing the country’s cost-of-living burden for households.
However, the Reserve Bank has also warned that this will come at the risk of higher interest rates in the short term as inflation expectations will need to adjust to the new target.
In the meantime, while discussions with the National Treasury are still ongoing, the MPC announced at its last meeting in July that it would prefer inflation expectations to anchor around its preferred new target of 3%.
Previously, the MPC preferred that inflation be anchored around the midpoint of its target range, 4.5%.
While this does not constitute an official change, economists explained that this new preferred target will inform the MPC’s interest rate decisions going forward.
Economist expectations
Reserve Bank MPC members. Left to right: Rashad Cassim, David Fowkes, Chris Loewald, Lesetja Kganyago, Mampho Modise, and Nomfundo Tshazibana
The MPC is set to announce its decision regarding South Africa’s interest rates on Thursday, 18 September.
So far in the current cutting cycle, the MPC has cut South Africa’s interest rates by 125 basis points. This followed a hiking cycle that saw the SARB raise rates by 475 basis points to combat South Africa’s post-pandemic inflation boom.
Several economists have pointed out that the SARB has room to cut rates further, with inflation largely under control and within the target range and price pressures remaining contained.
However, the MPC’s lower inflation target is expected to play a big role, and another interest rate cut could undermine this new target.
Therefore, Blackmore said he thinks that the Reserve Bank will stick to its decision and leave interest rates unchanged at its Thursday announcement.
“Reasons being – the expectation of inflation is not down to that 3% target level at this point yet, and actual inflation is also above that rate,” he said.
The most recent Bureau for Economic Research (BER) Inflation Expectations Survey for the third quarter of 2025 found that all three social groups surveyed lowered their longer-term inflation expectations.
These three groups – consisting of analysts, business people and trade union officials – now expect headline inflation in the next five years to average 4.2%.
While this is the lowest rate on record for long-term inflation, it is still far higher than the Resserve Bank’s preferred 3% target.
“One good read is that the core inflation (removing the volatile aspects of inflation) remains at that 3% target rate, and this does influence the decision to hold rates constant at this meeting,” Blackmore added.
Similarly, EY’s Chief Africa Economist, Angelika Goliger, said that while another rate cut of 25 basis points following the cut in July could happen, she expects the MPC to keep the interest rate as is.
However, this does not mean the chance is zero, with Bloomberg reporting that traders have raised their bets that the Reserve Bank will extend its interest rate-cutting cycle the day before the announcement.
The publication said forward-rate agreements, which are used to speculate on borrowing costs, are pricing in a 60% chance of a 25-basis-point cut, compared with a 48% probability before August’s inflation data was released.
This is because August’s print of 3.3%, down from 3.5% in July, is far lower than expected, particularly considering many economists expected inflation to rise.
Only two of 13 economists in a Bloomberg survey expected price growth to slow, making August’s outcome a surprise.
However, Blackmore said that while this lower outcome is a positive development, inflation is still expected to rise in the coming months due to base effects, which may result in no adjustment to the repo rate at Thursday’s meeting.
For More News And Analysis About South-Africa Follow Africa-Press
