SARB cuts rates again in July and announces new inflation target

Bank cuts rates to over two-year low and unveils new inflation target: At its meeting on 31 July, the Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) extended its loosening cycle and reduced its policy rate by 25 basis points to 7.00%—the lowest since November 2022. The reduction mirrored May’s and brought the cumulative amount of cuts to 125 basis points since September 2024. The decision was unanimous and had been priced in by markets. Moreover, the SARB announced the de-facto adoption of a new inflation target, saying it now targets inflation at the bottom of its 3.0–6.0% target range, instead of at the 4.5% midpoint as previously; official confirmation of this change by the National Treasury is still pending.

Improved inflation outlook and weak economic growth drive cut: Looking at the main drivers for the cut, headline and core inflation remained contained in June, with a stronger rand cheapening imports. Moreover, the inflation outlook improved, with the SARB reducing headline inflation expectations to 3.3% and 3.0% for 2026 and 2027, respectively; similarly, it trimmed core inflation projections for the same years to 3.2% and 3.1%, respectively. Additionally, the Bank aimed to support economic activity with the latest rate reduction; the SARB yet again chopped its growth forecasts for 2025 and 2026, penciling them in at 0.9% and 1.3%, respectively, on expectations that higher U.S. tariffs will hit exports plus business and consumer sentiment.

SARB takes a dovish turn: The SARB’s forecasts for end-2025 were more dovish than in May and the Bank now sees the rate at just below 6.75% by the end of the year, instead of May’s projection of marginally below 7.00%. The SARB will reconvene on 18 September. Since the SARB met, our panelists have cut their forecasts for interest rates at the end of 2025.

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