The Reserve Bank has held the repo rate at 6.75%, citing increased domestic risks and “what appears to be a rupture in the global political order”.
“There are also new threats to central bank independence,” Bank governor Lesetja Kganyago said, adding that 2026 “has begun with a new round of shocks”.
He also flagged electricity costs and food inflation — particularly meat prices, which are being affected by the foot-and-mouth disease outbreak — as risks to monitor.
Kganyago announced the decision on Thursday after the monetary policy committee’s (MPC) first meeting of 2026. Two members favoured a cut while four preferred a hold.
South African bonds firmed after the announcement with the yield on the blended 10-year dropping to its best level since July 2019 — pre-Covid-19.
At 3.38pm the rand had strengthened 0.3% to R15.72/$, little changed from before the speech.
The Bank’s decision marks the second MPC meeting since the 3% inflation target was formally adopted. It also comes ahead of the national budget in February, where markets will be watching to see if the government’s spending plans are consistent with that lower inflation goal.
While consumer inflation edged up slightly in December, closing the year at 3.6% (up from 3.5% in November), it brought the annual average for 2025 to 3.2% — the lowest since 2004 and well within the Bank’s official 3% target, with a tolerance band of one percentage point on either side. The Bank now expects inflation to have peaked in December and to slow from here.
It has also lowered its 2026 inflation forecast from 3.5% to 3.3%, citing a stronger rand and lower oil price assumption.
“We are, however, keeping an eye on food inflation, especially meat prices,” Kganyago said. “We are also concerned about electricity prices, given that Nersa’s price correction may rise from R54bn to R76bn.”
The MPC considered two scenarios: one favourable, one adverse.
Over the past year, the rand and oil prices have shifted significantly. While the Bank’s baseline forecast assumes these variables will remain close to their end-2025 levels, the outlook remains uncertain.
In a favourable scenario, the rand strengthens further and oil prices continue to drop. This leads to a temporary slowing in inflation to 2.3%, with expectations falling faster and converging on the 3% target more quickly. This would allow for interest rate cuts to be brought forward with a return to a neutral policy stance later this year.
In the adverse scenario, the rand weakens and oil prices rise again. Inflation peaks at 4% and convergence to the 3% target is slower. In this case, interest rates remain unchanged in the near term and the transition to neutral is delayed by about a year.
Commenting on the rate cut, Prof Raymond Parsons of the North West University Business School said: “With the Reserve Bank committed to a gradual and flexible transition toward a 3% inflation target, disinflationary forces are therefore likely to continue to prevail. The balance of risks to inflation outlook could therefore now instead be reasonably described as tilted to the downside.”
According to Stanlib chief economist Kevin Lings, the Bank is “[clearly] adopting this conservative approach to further entrench their commitment to the new 3% inflation target”.
The Reserve Bank mentioned the Bureau for Economic Research’s (BER) recent record-low inflation expectations, adding that lower expectations will be important for getting inflation to settle at 3%.
According to Tertia Jacobs, Treasury Economist at Investec Corporate and Investment Bank, inflation expectations typically take 12 to 24 months to begin converging towards a new target.
“In this context, 2026 should be viewed as a transitional year, during which inflation expectations and wage growth adjustment will be monitored in response to the lower target. The BER’s fourth quarter inflation expectation survey shows that expectations in two years have started to move in the right direction, moderating to 3.7%.”
Update: January 29 2026
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