The South African Reserve Bank (SARB) restarted its monetary-policy easing cycle on Thursday (November 20) with a 25bp reduction in the repo rate to 6.75%, the first adjustment under the government’s newly adopted 3±1% inflation target introduced at last week’s Medium-Term Budget Policy Statement. The prime lending rate is now at 10.25%.

The cut was widely expected and aligned with the LSEG consensus, and the Monetary Policy Committee (MPC) voted unanimously in favour of the move. Although headline inflation in South Africa rose to 3.6% y/y in October, core inflation fell to 3.1% y/y.

In its post-meeting communiqué, the Bank said risks to the inflation outlook had moderated relative to earlier in the year, signalling improving conditions for easing while stopping short of providing explicit forward guidance.

Governor Lesetja Kganyago said that while inflation has ticked higher, it is due to non-core items and temporary shocks, like in the red meat market. “We continue to see this pressure as temporary, with inflation heading lower again from the beginning of next year. Indeed, recent outcomes have undershot our forecasts slightly,” he said.

“Because of these downside surprises, together with a stronger rand, and a lower oil price assumption, we have small downward revisions to our inflation outlook, for both 2025 and 2026,” Kganyago said. “We remain on track to deliver 3% inflation over the medium term.”

Commenting on the decision, Jason Tuvey, deputy chief emerging markets economist at Capital Economics, said last month’s rise in headline inflation to 3.6% y/y – its highest rate since September 2024 – “clearly didn’t worry policymakers”.

“Governor [Lesetja] Kganyago argued that this was driven by non-core items and the MPC believes this will prove temporary. Recent weaker-than-expected inflation outturns, coming alongside a stronger rand and lower oil prices, prompted the SARB to revise down its inflation forecasts for this year and next, to 3.3% and 3.5% respectively. Inflation is expected to head lower from early next year.”

The meeting followed the MPC’s pause at its previous session, when policymakers cited upside risks to inflation from global oil prices, the weak rand and elevated food-price volatility. The SARB noted that domestic demand remains subdued and that tighter fiscal settings could reinforce disinflationary dynamics over the coming quarters.

“The favourable inflation backdrop comes at the same time that South Africa’s economy is beginning to show some sustained, if unspectacular, growth,” Tuvey said.

“After GDP expanded by 0.8% q/q in the second quarter, the latest activity data point to an expansion of around 0.5% q/q in Q3. Survey indicators are also generally painting a more positive picture. Governor Kganyago said that while ‘growth is better, it is not yet healthy’. In any case, we think there is a large negative output gap which should bear down on price pressures.”