The SA Reserve Bank cuts rates as inflation expectations continue to moderate

SOUTH AFRICA - Report 01 Aug 2025 by Iraj Abedian

The South African Reserve Bank (SARB) once again announced, on July 31, 2025, that it is cutting the benchmark interest rate, its second consecutive reduction since May, and by another 25 basis points. The decision followed the conclusion of the Monetary Policy Committee’s (MPC) fourth meeting of the year. The repo rate, therefore, comes down from 7.25% to 7%, and the prime lending rate from 10.75% to 10.5%.

With the prevailing insipid economic environment, alongside tamer inflation, the Reserve Bank has been reducing interest rates since H2-2024, with the July 2025 cut being the fifth one. At the same time, inflation expectations have been moderating, and this, too, likely facilitated the Bank’s decision to reduce rates. According to the latest inflation expectations survey by the BER, inflation expectations fell across all respondent groups: business executives, trade union representatives, and analysts, with the downward adjustment evident across the entire forecast horizon. On average, survey participants now anticipate headline consumer inflation of 3.9% in 2025, gradually increasing to 4.3% in 2026 and 4.5% in 2027. This broad-based decline in expectations reflects improved price stability.

Furthermore, the Reserve Bank noted that "the prospect of a lower inflation target has bolstered the rand and lowered long-term borrowing costs." This sentiment reflects growing investor confidence in the SARB’s evolving policy framework, particularly as markets interpret the potential shift to a 3% inflation objective as a sign of firmer monetary discipline and structural disinflation.

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