Governor of the South African Reserve Bank Lesetja Kganyago confirmed that 2025 had been an ‘uncertain year’. (Photo: Waldo Swiegers/Bloomberg via Getty Images) 
The Monetary Policy Committee (MPC) of the South African Reserve Bank (Sarb) cut its key repo rate by 25 basis points on Thursday to 6.75%, citing an improved inflation outlook and the rand’s recent robust performance and bringing its cumulative cuts in this easing cycle to 1.5 percentage points.
The move takes the prime lending rate to 10.25%, providing another small boost to an economy that the Sarb now sees growing this year by 1.3%, a slight upward revision from its previous forecast. It might also give a retail lift to Black Friday and Christmas shoppers – though most economists caution that there is a lag effect between interest rate cuts and consumer spending.
“Household spending has been relatively strong to date, supported by wealth effects, further withdrawals from two-pot pension savings, and lower inflation and interest rates,” the MPC statement noted.
The rate cut was ultimately a reflection of a brightening inflation outlook and the Sarb's confidence that it is on track to reach its new target of 3.0% over the medium-term horizon.
What this means for you
Herschel Jawitz, CEO of Jawitz Properties, notes that aggressive competition between the banks means that, on average, mortgage rates are at 9.5%, which is positive for demand and long-term price growth.
“The cumulative drop since the rate cutting cycle started means that, on a R1-million mortgage at prime, the monthly repayments have reduced from R10,837 per month to R9,984, a monthly saving of R853 and over R10,000 per year,” he said.
According to Dr Elna Moolman, Standard Bank Group Head of South Africa Macroeconomic Research, the maximum impact of the cuts delivered in this cycle will be felt next year. But the relief to consumers is immediate.
FNB chief economist Mamello Matikinca-Ngwenya adds, “Economic conditions remain ripe for continued easing of monetary policy. Headline inflation is subdued, and only marginally above the new preferred target of 3%, while signs of economic slack prevail as demand-driven inflation has failed to normalise at the pace anticipated at the start of the year. Therefore, this further easing in borrowing costs will push confidence and willingness to spend in the right direction,” she said.
“... inflation has accelerated somewhat over the past few months, reaching 3.6% for October. This is higher than the 3% average for the first half of the year ... 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,” the MPC statement said.
‘We remain on track’
“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. We remain on track to deliver 3% inflation over the medium term.”
On that score, this was the first MPC since the adoption of the new target – which was previously 3% to 6% – and Sarb Governor Lesetja Kganyago provided some clarity on that point.
“The revised target, agreed between the Minister of Finance and myself as the Governor of the South African Reserve Bank, is 3% plus or minus one percentage point,” Kganyago said.
“The tolerance band, of one percentage point either side of 3%, does not mean we will be indifferent to inflation anywhere between 2% and 4%. We want to be at 3%.”
But no central bank can possibly always hit a precise target like a sharpshooter on a range .
“No central bank has the tools to deliver inflation at an exact point all the time. As flexible inflation targeters, we also recognise that trying to offset all price shocks would create undesirable volatility in output. To support communication and accountability, we therefore want it understood that inflation will not always be precisely 3%.”
During the Q&A that followed, the governor was asked why the MPC had not elected for a 50 basis point cut.
‘We must move with caution’
“It is important that we move with caution,” was his typically cautious take on the matter.
He was also asked about the prospect of another credit ratings upgrade after S&P gave South Africa’s a lift last week while maintaining its positive outlook.
Read more: Eskom lights the way to SA’s first credit ratings upgrade in 20 years
“It’s much easier forecasting the inflation rate; it might even be easier forecasting exchange rates than forecasting what ratings agencies are going to do,” Kganyago replied.
He went on to point out that South Africa had effectively been given a “double upgrade” by S&P.
“Because what normally happens is that if you are on a positive outlook, you will get an upgrade and then put on a stable outlook and only after a while will the outlook be revised to positive before you are upgraded. South Africa got upgraded and maintained the positive outlook,” he said.
“That says to us that the momentum is a positive one.”
Finally, he was asked to sum up 2025.
“A very uncertain year,” was his curt response.
And indeed it has been. But uncertainty around the new inflation target has been lifted and that alone should provide more clarity for South African monetary policy in 2026. DM