The South African Reserve Bank brought Christmas cheer when the central bank governor, Lesetja Kganyago, announced a 25 basis point cut to the repo rate.
The rate now stands at 6.75% effective immediately after a unanimous decision by the monetary policy committee (MPC), meaning consumers will pay less for credit and have more money to spend, stimulating economic growth over the festive season.
The rate cut comes in the same week the central bank formally shifted from the long-standing 3–6% inflation range to a point target of 3%, with a tolerance band of one percentage point on either side.
Kganyago stressed that this does not mean the bank is comfortable with inflation anywhere between 2% and 4%.
Outlook steadier than in 2024
He said the bank is still targeting 3%, adding that monetary policy would always be guided by the goal of returning inflation to this point.
“To support communication and accountability, we therefore want it understood that inflation will not always be precisely 3%,” said Kganyago.
He said inflation rose to 3.6% in October, up from 3% in the first half of the year, adding that this increase was driven by non-core items, including meat, vegetables, and fuel.
“We continue to see this pressure as temporary, with inflation heading lower again from the beginning of next year,” said Kganyago.
He said the bank then made small downward revisions to its inflation outlook for both 2025 and 2026, saying the central bank remained on track to deliver 3% inflation over the medium term.
On the growth front, he said South Africa’s outlook is looking steadier than in 2024. He said the bank revised its 2025 growth forecast slightly upwards to 1.3% and expects growth to be close to 2% over the full forecast period.
Household spending has remained strong, helped by lower inflation and interest rates, the two-pot pension withdrawals, and wealth effects, while employment is rising too.
However, investment remained weak in the first half of the year, and he said an expected recovery later in the year would be an important signal that growth is returning to its long-term trend.
Environment remains tough
Globally, Kganyago said, 2025 had turned out better than expected for emerging markets, helped by stronger capital flows, a weaker dollar, and favourable trade conditions.
He warned of risks linked to an investment boom in artificial intelligence and the possibility of a correction in global financial markets.
The Reserve Bank also ran two risk scenarios for this meeting, one involving a rebound in the US dollar that wipes out rand gains, and another involving higher administered prices after the R54-billion electricity pricing error.
Both scenarios led to tighter monetary settings than in the baseline forecast.
Looking ahead, the bank’s quarterly projection model still shows gradual rate cuts as inflation subsides, but Kganyago stressed that the MPC will decide “on a meeting-by-meeting basis, with careful attention to the outlook, data outcomes, and the balance of risks”.
Kganyago further noted South Africa’s reform path, including the recent credit rating upgrade and the country’s removal from the FATF grey list, but warned that the global environment remains tough.
