The South African Reserve Bank kept borrowing costs unchanged, even as cooler-than-expected inflation brought policymakers closer to their 3% target at which they now aim.
The monetary policy committee maintained the benchmark interest rate at 7%, holding it at the lowest level since November 2022, Governor Lesetja Kganyago told reporters at a briefing in the capital Pretoria on Thursday. That matched the median estimate of 23 economists in a Bloomberg survey, in which 15 predicted the hold.
“We don’t think this marks the end of South Africa’s easing cycle, but it’s clear that SARB wants to take a cautious approach to further cuts,” said Lauren van Biljon, senior portfolio manager at Allspring Global Investments UK Ltd.
Money-market traders reduced bets on a rate cut this year. Forward-rate agreements are now pricing in a reduction of 13 basis points in November, from 20 basis points before the MPC decision was announced.
The decision was split among the six-member MPC with four voting to keep rates unchanged and two seeking a quarter-point reduction.
The rand was slightly stronger at 17.35 per dollar by 6 p.m. in Johannesburg. Yields on the benchmark 2035 government bond were two basis points lower on the day.
“The move seems marginal amid bond-supportive factors, including lower inflation, and an expected formal endorsement of the new inflation target,” said Samir Gadio, head of Africa strategy at Standard Chartered Plc.
The SARB raised its 2025 economic growth forecast to 1.2% from 0.9% at its previously, which Kganyago attributed to a better-than-expected second-quarter gain in gross domestic product. It projected inflation to rise over the next few months and peak at around 4%, taking the average this year to 3.4% with 3.6% seen in 2026, slightly higher than the previous forecast.
The pause, the first since March, comes a day after data showed inflation unexpectedly slowed to 3.3percent in August from 3.5percent the prior month. It also follows a decline in average inflation expectations two years ahead to 4.2%, which the central bank watches closely, the lowest level since 2005.
The dovish data had lifted bets of a rate cut but “the MPC opted for caution instead, likely concerned about a possible rebound in inflation in the coming months,” said Thierry Larose, a portfolio manager at Vontobel Asset Management AG. “They also appeared concerned that the recent improvement in inflation dynamics has not yet translated into better anchored expectations.”
South Africa Central Bank Adjusts Inflation Forecast
The meeting is the first since the MPC expressed its preference to aim for inflation at the bottom of the its 3% to 6% target band. Officials have said it could take them three years to guide expectations down to that level.
While Finance Minister Enoch Godongwana has not formally ratified the new goal, the National Treasury and the central bank signaled that technical work to review the target is nearing an end, and that he will make an announcement as soon as is practical to anchor expectations.
Godongwana is scheduled to deliver his medium-term budget update on Nov. 12.
What Bloomberg Economics Says…
“Despite the dissents, the SARB’s shift toward a tighter inflation target suggests policy will remain steady. A pickup in growth in the second quarter of 2025 also eases the pressure to cut rates as the bank balances inflation with economic support.”
Kganyago noted the moderation in inflation expectations, which he said showed the public is getting used to tamer price pressures, adding that it was “desirable” to finalize target reform.
The MPC studied what could happen if price expectations cool at a slower pace than forecast and found this would delay convergence to 3% inflation and lead to a somewhat tighter policy stance, with roughly one fewer rate cut and moderately lower growth.
South Africa Pauses Interest Rate Cuts
The governor, who told reporters that he and the minister were “always talking,” said the exercise showed “there are gains to be had from clear and credible communication. In this regard, it is desirable to finalize target reform.”
“We look forward to agreeing a new target as soon as is practical, to better anchor inflation expectations,” he added.
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