The Reserve Bank’s monetary policy committee (MPC) kept the repo rate at 7% at the conclusion of its three-day meeting on Thursday, maintaining a cautious stance in the face of inflationary pressures stemming from new trade tariffs, global uncertainty and a subdued outlook for the domestic economy.
Four of the six MPC members voted to hold the rate, while two preferred a cut of 25 basis points.
The decision, which was in line with market expectations, marks the Bank’s first policy decision since it formally announced a preference for a 3% inflation anchor. It also precedes finance minister Enoch Godongwana’s medium-term budget policy statement (MTBPS) on November 12.
“While we have seen a notable improvement in consumer confidence, business confidence has not followed the same trend,” FNB chief economist Mamello Matikinca-Ngwenya said. Both readings are still in negative territory, suggesting that the economy still faces a low-growth environment, she added.
“Interest rates are only one factor influencing confidence, and the [Bank’s] decision to keep rates unchanged places greater emphasis on other priorities such as boosting household incomes and creating employment opportunities.”
Explaining the rates decision, Reserve Bank governor Lesetja Kganyago said that while global conditions were supportive for emerging markets, long-term interest rates in major economies were moving higher due to structural pressures, including elevated debt and lingering inflation risks. Still, commodity prices have broadly risen and a weaker dollar has also benefited emerging markets such as SA.
The Bank again expressed confidence in its 3% CPI target, saying it still expects inflation to reach that level even if expectations take longer to adjust.
“In our economic modelling, inflation expectations play an important role in shaping the transition to our 3% preference,” Kganyago said. “Given uncertainty about the behaviour of expectations, for this meeting we considered scenarios where expectations adjust more slowly than they do in our baseline. These scenarios treat expectations as more backward-looking, with less attention paid to the [Bank’s] communication.”
The scenarios suggest that inflation would take longer to settle at the 3% target, he said. “The policy stance is somewhat tighter over the forecast period, with roughly one less cut and moderately lower growth.”
The Bank revised its 2025 growth forecast upward to 1.2% from 0.9% “despite a weaker export outlook, given high tariffs,” Kganyago said.
The MPC meeting was the first since the implementation of US tariffs on SA goods on August 7, and committee members noted that export growth has been marked down from real growth of 2.6% growth to a contraction of 0.2%, reflecting the levies and a relatively stronger rand.
Still, Matikinca-Ngwenya said the tariffs issue “can be resolved and should not be viewed as a permanent or structural shift in our economy”.
Kganyago cautioned against reading too much into the stronger-than-expected economic growth in the second quarter — GDP expanded 0.8% in the three months to June 30 — because “a healthy growth rate will require much higher investment levels than we are achieving now”.
On inflation, he noted the pickup, as expected, in the second half of the year. This week, though, the annual consumer price index for August eased to 3.3% from 3.5% in July. Prices declined 0.1% in the month, marking the first such decrease since October 2024. But core inflation remained at 3.1%.
“Our forecast now incorporates higher electricity price inflation, of nearly 8% rather than 6%, given the recent pricing correction by Nersa [the energy regulator]. This is a reminder of the serious dysfunction in administered prices, which undermines purchasing power and weakens growth,” Kganyago said.
The solution to the “crisis” was not a higher level of inflation, “but rather sector-specific reforms to improve efficiency”.
The Bank now sees headline inflation averaging 3.4% in 2025 and 3.6% in 2026, before returning to the 3% target in 2027.
However, the most recent survey by Bureau for Economic Research found that the average expectation for headline inflation over the next five years has fallen to 4.2%, with expectations for 2025 and 2026 averaging 3.8% and 4.2%, respectively.
“This means there is still some work to do to bring down those expectations,” said Oxford Economics senior economist Jee-A van der Linde.
According to Kganyago there are gains to be had from “clear and credible communication”.
“In this regard, it is desirable to finalise target reform. Accordingly, and in line with the recent joint statement from the [Reserve Bank] and the National Treasury, we look forward to agreeing a new target as soon as is practical, to better anchor inflation expectations.”
Asked whether he and Godongwana are communicating and aligned, Kganyago said: “We are always talking.”
The rand firmed after the rates decision and at 6.50pm it was 0.3% stronger at R17.3369/$.
Update: September 18 2025
This story contains additional information, comment and the impact on the rand.
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