South African Reserve Bank Governor Lesetja Kganyago during a media briefing before the Medium Term Budget Speech at Parliament on 26 October 2022. (Photo: Leila Dougan) 
South Africa’s consumer price index (CPI) slowed to 3.3% in August on an annual basis from 3.5% in July, undershooting market expectations and raising the prospects of a rate cut sooner rather than later – perhaps as early as Thursday when the central bank’s Monetary Policy Committee (MPC) wraps up its next meeting.
“This release is something of a game changer. Suddenly, the September MPC meeting is looking very live,” said Razia Khan, chief Africa economist at Standard Chartered Bank in London.
“Before this inflation release (3.3% versus expectations of 3.6%), we were convinced that there was little chance of a [Reserve Bank] cut. Now, the window of opportunity for easing is difficult to dismiss. While our official view remains ‘on hold’, this could REALLY go either way," she said in emailed remarks to Daily Maverick.
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In her commentary on the data, Investec chief economist Annabel Bishop said the fall in inflation heralded a 25-basis-point rate cut on Thursday.
The South African Reserve Bank (Sarb) does not typically act on one set of data, but there are other favourable economic winds blowing in the direction of a rate cut.
The rand has been perky and has gained more than 8% this year on the US dollar, which has weakened on the global forex stage in part because of President Donald Trump’s ham-fisted trade and tariff policies.
And there are widespread expectations that the US Federal Reserve will cut rates on Wednesday in the face of signs of weakness in the labour market. A Fed cut gives the Sarb room to follow suit as there is still a gap in rates which supports the rand.
So the stars are suddenly lined up for the Sarb to cut interest rates by 25 basis points this week, which will take the repo rate to 6.75% and the prime lending rate for consumers to 10.25%.
What this means
A rate cut will bring a bit of relief to your credit burden if you have debt and provide a small spark for an economy that remains in slow-growth mode. Overall, the trajectory is promising: inflation is cooling and the Sarb’s focus on a 3.0% target should anchor inflation expectations lower in a virtuous cycle that will see interest rates fall further down the road.
It must be noted that while the Sarb’s official inflation target is 3% to 6%, it made it clear in July that it is now aiming for 3.0% and discussions with Treasury to lower it are well advanced. So, the August CPI read remains above the Sarb’s preferred target but is moving in the right direction.
Cooling food and fuel inflation were the main drivers of the softer headline rate and that – combined with a possible rate cut – heralds much-needed relief for South African consumers. DM