SARB resumes loosening cycle in May, as expected

Rates fall to an over two-year low: At its meeting on 29 May, the Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) resumed its loosening cycle after a brief pause in March and reduced its policy rate by 25 basis points to 7.25%. The cut, which brought cumulative reductions to 100 basis points over the last year, had been priced in by markets. The decision to cut was unanimous this time, although its size was not: One of the MPC’s six members preferred a 50 basis point reduction.

Improved inflation outlook and a disappointing economic performance drive cut: In terms of what drove the SARB’s decision, one key factor was headline inflation, which remained below the SARB’s 3.0–6.0% target band in April–May. Moreover, the inflation outlook has improved amid a stronger currency, lower oil prices and the recent scrapping of the VAT increase; the SARB cut its headline forecasts for 2025 and 2026 to 3.2% and 4.3%, respectively; similarly, it reduced its core inflation forecasts to 3.3% and 4.1%, respectively, for the same two years. 2027 projections for both metrics were also trimmed. Moreover, recent high-frequency data augurs a disappointing performance for the economy. This, along with weaker projections for global economic growth due to rising trade barriers, led the SARB to trim its domestic growth forecasts to 1.2%, 1.5% and 1.8% for this year, the next and 2027, respectively.

Additional cuts still in store: The SARB forecasts the repo rate to end this year marginally below 7.00%, a more dovish view compared to March’s forecast of 7.25%. The SARB will reconvene on 31 July. Most of our panelists see 25–75 basis points of additional cuts by December, while the rest see rates on hold. Our Consensus is for the rate to end 2025 at 7.00%.

How should you choose a forecaster if some are too optimistic while others are too pessimistic? FocusEconomics collects South African interest rate projections for the next ten years from a panel of 15 analysts at the leading national, regional and global forecast institutions. These projections are then validated by our in-house team of economists and data analysts and averaged to provide one Consensus Forecast you can rely on for each indicator. By averaging all forecasts, upside and downside forecasting errors tend to cancel each other out, leading to the most reliable interest rate forecast available for South African interest rate.

Download one of our sample reports to visualize what a Consensus Forecast is and see our South African interest rate projections.

Want to get access to the full dataset of South African interest rate forecasts? Send an email to info@focus-economics.com.