In brief
- The Monetary Policy Committee (MPC) of South African Reserve Bank (SARB) lowered its repo rate by 25bps to 7.25% in its May 2025 meeting with effect from 30 May 2025. This rate decision aligns with consensus expectation of an easing stance. The specific rate cut stance was favoured by a majority of the policymakers, 5 out of 6, with the sole dissent favouring a higher 50bps cut.
- The monetary policymakers, as anticipated, trimmed lower their growth expectations, largely due to headwinds from the external sector given the strides around structural reforms domestically. For 2025, the SARB lowered its growth projection from 1.7% in March 2025 MPC to the current 1.2%.
- Inflation forecasts have been revised lower in the latest projections, reflecting stronger South African Rand assumptions and lower global oil prices which more than offset the impact of the proposed fuel levy that was introduced following the shelving of the VAT hike.
- As expected, and from recent rhetoric from officials, the MPC meeting decisively considered inflation targeting under a 3.0% regime. Accompanying the usual press statement were materials from the SARB Biennial Conference that was held late March 2025. Specifically, the Conference’s overarching theme was the inflation target that has been dominant in recent MPC meetings.
- What remains unclear is the inflation target band, although the SARB’s preference has been for a tighter band than the current 300bps band of between 3.0% and 6.0% with a mid-target of 4.5%. Given the statement was loaded with “we would like to see inflation expectations move lower towards the bottom end of our target range”, this tips the odds of a 3.0%-point target, in our view, but the overall preference of a narrow band looks still on the cards.
- Given the much lower terminal repo rate under the 3.0% inflation target scenario compared to the baseline, this suggests a transition timeframe to effect the lower inflation target, in our view. This was also the case with the transition of about 2 years with the previous announcements of inflation targeting tweaks.
Downloads
Download Full Report