The Reserve Bank on Thursday delivered its fourth interest rate cut of the year, reducing the repo rate by 25 basis points to 6.75%. The decision was unanimous.
Thursday’s cut, widely expected by markets, brings the cumulative easing cycle in 2025 to 100 basis points.
The move comes amid a downside surprise in October’s inflation data and a significant shift in the country’s monetary policy framework following the formal adoption of a 3% inflation target.
Headline CPI for October rose to 3.6% from 3.4% in September, while core inflation edged down to 3.1%.
Citibank’s Gina Schoeman said in a note that the October data confirmed a peak in the inflation cycle, adding that “achieving the 3.0% inflation target could be easier now that the CPI downside surprise has dropped the starting point of inflation trajectories, together with rand strength and lower bond yields”.
“It has been a turbulent year for the global economy,” Reserve Bank governor Lesetja Kganyago said yesterday but added that in emerging markets — unlike major economies — inflation had eased.
The Bank revised its 2025 growth forecast slightly to 1.3%, up from 1.2%. “We continue to see growth nearing 2% over the forecast horizon.”
Yesterday’s decision is the first since the Treasury, in the recent medium-term budget policy statement, officially endorsed a new 3% inflation target with a one-percentage-point tolerance band.
This formalises the Reserve Bank’s shift in recent months from targeting the midpoint of the old 3%–6% range to a more precise anchor, bringing South Africa closer in line with global best practice.
The Bank yesterday revised its inflation outlook downward — from 3.4% to 3.3% in 2025 and 3.6% to 3.5% in 2026. “We remain on track to deliver 3% over the medium term,” Kganyago said.
At this week’s meeting, the Bank’s monetary policy committee (MPC) considered two scenarios. The first involved a rebound in the dollar, noting that while the rand has appreciated this year, it partly reflects broad dollar weakness rather than inherent rand strength.
The MPC explained that though the rand had gained about 9% against the dollar so far this year, it had depreciated by about 2% against the euro. In that scenario, the rand returned to its 2023 levels against the dollar.
The second scenario assumed higher administered prices, linked to a rapid correction of the R54bn electricity pricing error disclosed a few months ago. It was assumed that the correction by the National Energy Regulator of SA would be frontloaded, which explains why inflation in 2028 does not rise further. This scenario also assumed that inflation expectations would remain elevated for longer in response.
“Both scenarios featured tighter monetary policy, with rates coming down more slowly compared to the baseline,” Kganyago said. “The administered price scenario in particular shows that if price setters take on board the 3% target, we will have space to get to lower rates faster,” he said.
At the medium-term budget, Kganyago called the shift “a win for all South Africans”, noting that persistently lower inflation would support growth, investment and job creation. “What is important is that the benefits outweigh the costs,” he said at the time.
On Thursday, he said the one percentage point tolerance band around 3% did not mean the Bank was comfortable with inflation anywhere between 2% and 4%. The aim was still to keep it as close to 3% as possible.
“When there are deviations, we will explain what has driven inflation away from the target, and we will do what is required to get back to target,” he said, adding that breaches would only occur in the event of severe shocks.
“There has been significant progress on reform this year, as underscored by the recent credit rating upgrade from S&P, as well as South Africa’s exit from the Financial Action Task Force’s greylist. The global environment nonetheless remains challenging, so it’s urgent to sustain domestic reform efforts,” Kganyago said.
Analysts welcomed the move.
Commenting on the cut, FNB chief economist Mamello Matikinca-Ngwenya said, “Economic conditions remain ripe for continued easing of monetary policy. Headline inflation is subdued and only marginally above the new preferred target of 3%, while signs of economic slack prevail as demand-driven inflation has failed to normalise at the pace anticipated at the start of the year. Therefore, this further ease in borrowing costs will push confidence and willingness to spend in the right direction.”
Oxford Economics chief economist Jee-A van der Linde believes the Bank will proceed cautiously at its next MPC meeting on January 29, “with inflation expected to tick gradually higher over the coming months”.
“We believe headline inflation is likely to peak at around 4% by [the middle of the first half] 2026,” he said.
Update November 20 2025. This story has been updated with economists’ comments.
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