The South African Reserve Bank (SARB) announced on Thursday that it will maintain the repo rate at 7.5 percent, attributing this decision to inflation remaining within the target range.
Governor Lesetja Kganyago stated that four members of the Monetary Policy Committee (MPC) supported holding the rate steady, while two advocated for a 25-basis-point reduction. He highlighted that the global economy is experiencing significant uncertainty, characterised by escalating trade tensions and abrupt shifts in longstanding geopolitical relationships.
Regarding domestic prices, Kganyago noted that although inflation remains in the lower half of the target range, it has edged higher in recent months. Goods inflation remains low, a situation he considers likely temporary, while services inflation is somewhat higher but still below the 4.5 percent target midpoint. Inflation expectations remain close to this midpoint, indicating that, for now, inflation appears contained.
The SARB projects headline inflation at 3.6 percent in 2025 and 4.5 percent in 2026, driven by improved fuel price forecasts. Additionally, lower electricity tariffs announced by the National Energy Regulator of South Africa in February are expected to help offset pressure from the value-added tax (VAT) increase. During his budget presentation last week, Finance Minister Enoch Godongwana announced a 0.5 percentage point VAT hike for the 2025/26 financial year, commencing on April 1.
Riaan Grobler, head of advisory services at Everest Wealth, a private investment and wealth management company in South Africa, anticipates possible changes in May. He suggests that an interest rate cut may occur when there is more clarity about inflation trends, the impact of increased energy tariffs, U.S. trade policies, and the proposed VAT increase. Grobler also observed that the U.S. Federal Reserve has kept interest rates unchanged for the second consecutive time, which may have influenced the SARB’s decision. Since November 2021, the SARB has raised interest rates by 475 basis points but has only reduced them by 75 basis points so far.
