South African Reserve Bank pauses loosening cycle in September

SARB holds fire in split decision: At its meeting on 18 September, the Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) paused its loosening cycle, leaving its repo rate unchanged at 7.00%. The hold followed 25 basis point cuts in May and in July. The decision was not unanimous: Two of the six Committee members voted for another 25 basis point reduction. The market had also been split following the unexpected deceleration in August’s headline inflation.

Assessment of the impact of past cuts is still ongoing, plus inflation outlook deteriorates: The decision to hold rather than reduce rates further aimed largely to assess the full impact of the cumulative 125 basis points of reductions since September 2024. Regarding price pressures, the inflation outlook deteriorated: The SARB hiked its headline inflation forecasts for 2025, 2026 and 2027, plus core inflation for 2026. The Bank now only sees 2027 core inflation at its new preferred target of 3.0%, with the other five metrics topping the target—but remaining within the 3.0–6.0% tolerance band. Accelerating inflation in the short term will reflect higher electricity prices. Regarding activity, the outlook improved for 2025 and 2026, with the Bank increasing GDP growth forecasts to 1.2% and 1.4%, respectively, giving it room to hold rates steady. The improvement reflects a stronger-than-anticipated Q2 upturn and comes despite expectations of softer export growth amid U.S. tariffs.

SARB’s September forecasts more hawkish than July’s: The SARB did not provide explicit forward guidance on future interest rate movements. However, the Bank’s forecasts for end-2025 and end-2026 were more hawkish: It now sees the repo rate at just below 7.00% and 6.25%, respectively, instead of July’s projection of just below 6.75% and 6.00%. The SARB will reconvene on 20 November—its final scheduled meeting of 2025. Our panelists are split: Some see the SARB holding rates steady through the end of 2025, and the rest see room for one final 25 basis point cut.

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