SARB September MPC Review

The SARB kept its benchmark rate unchanged at 7.00%, matching consensus estimates and our base case. While there was the risk of a rate cut today, the SARB’s push to anchor inflation expectations near its preferred target of 3% meant that the majority of MPC members favoured keeping policy tighter, at least for now. As can be seen in our dashboard above, macroeconomic and financial market conditions still favour looser monetary policy, but the uncertainty regarding the timing of the inflation target shift has likely pushed out the timeframe. Currently, inflation remains low but faces risks from higher administered prices. These risks were deemed enough to raise the SARB’s inflation forecasts across the board, albeit keeping them well below 4.00% through 2027.

Economic activity indicators remain weak, but the economy’s surprise performance in Q2 has seen the SARB raise its growth estimate for this year to 1.2% from 0.9%. However, GDP growth is still not forecast to rise above 2.0% over the forecast horizon, indicating that the SARB does not see enough evidence of structural reforms being implemented to elevate South Africa out of its low-growth state.

Meanwhile, ETM’s proprietary indicators continue to favour lower interest rates going forward, with inflation risk still assessed as being very low, albeit off the lows seen earlier this year. Furthermore, our ZAR sentiment indicator does not point to any major near-term depreciation risk for the currency, which will help to anchor inflation.

Overall, the meeting is unlikely to bring an end to the current easing cycle. While rates were kept on hold and the tone was notably less dovish than seen before, the SARB is taking some time to assess how recent monetary policy easing is affecting the economy, and if inflation expectations will continue to hold around the new preferred inflation target of 3%. If CPI inflation surprises to the downside over the next two months, and inflation expectations remain contained, there will be scope for a resumption of easing at the final MPC meeting for the year. However, if these factors play out according to the SARB’s revised estimates, then we should see a resumption of rate cuts in early 2026.
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