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South Africa Interest Rates 2025: Why the Next Cut Will Be a Close Call
Lower inflation sparks debate
South Africa’s inflation surprise in August, dipping to 3.3% when many expected it to climb, has reignited hopes of another rate cut. For households battling high living costs and businesses eager for cheaper borrowing, this was welcome news. Yet, the Reserve Bank’s next move is anything but guaranteed.
The picture is complicated by global and local pressures. The United States Fed has already cut rates, creating space for South Africa to consider doing the same. At home, weaker fuel and food prices have softened inflation, but economists warn that this relief might not last.
Economists divided
Investec Chief Economist Annabel Bishop believes the South African Reserve Bank has room to cut. She argues that softer inflation and the rate gap between South Africa and the US support at least one or even two cuts before the end of 2025. Bishop expects inflation to remain close to 3% well into 2026 and 2027, aligning with the Reserve Bank’s proposed tighter target range.
Others are less convinced. Independent economist Elize Kruger has cautioned that inflation is expected to edge higher towards 4.2% by December 2025. Sanlam Investments’ Arthur Kamp adds that the current dip looks more like a trough than a trend. Both warn that the Reserve Bank is unlikely to cut aggressively while its preferred target of 3% remains out of reach.
What makes this moment unique
The debate is intensified by the Reserve Bank’s ongoing shift towards a stricter 3% inflation target, even though the official policy target remains 4.5%. While Treasury still builds budgets around the higher figure, the central bank has already used the new benchmark in its last two meetings, signalling how seriously it is being considered.
This leaves the Monetary Policy Committee in a tricky position. Cut rates too quickly and risk inflation spiking again. Hold steady and face criticism from sectors like property, which have long argued that expensive borrowing is choking growth.
What households can expect
Since September 2024, the Reserve Bank has trimmed rates by a total of 125 basis points, bringing the repo rate to 7%. This has already offered some relief, with the prime lending rate now at 10.5%. Still, uncertainty remains ahead of the September 2025 meeting, where the outcome could be either another small cut or no change at all.
For now, South Africans can expect the debate to intensify. On one side are those demanding bold action to kickstart the economy. On the other are those urging caution in the face of unpredictable global markets and a domestic inflation target that is not yet settled. The only certainty is that the call will be close.
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Source: Business Tech
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