Although the decision was largely expected, the latest inflation and inflation expectations prints created some doubt.
The South African Reserve Bank (Sarb) kept the repo rate steady at 7.0% after the September meeting as economists expected.
Jacques Nel, head of Africa Macro at Oxford Economics Africa, says the Sarb still sees inflation falling to its new 3.0% target, even if inflation expectations converge more slowly than in its baseline, indicating its confidence in achieving its new goal.
“The consensus view was that the Sarb would keep rates steady, but the lower than expected inflation print for August, which followed a welcome reduction in inflation expectations, meant that there was some doubt in the air.
“However, the latest inflation expectations survey puts medium-term inflation at 4.2%, while the Sarb has said it expects inflation expectations to settle around a ‘new normal’ of 3.0% in 2027. This means there is still some work to do to bring down those expectations.”
Nel points out that Sarb governor Lesetja Kganyago took the time to discuss scenarios where expectations adjust more slowly than in the baseline. “These scenarios treat expectations as more backward-looking, with less attention paid to the Sarb’s communication.
“In these scenarios, the policy stance is somewhat tighter over the forecast period, with roughly one less cut and moderately lower economic growth. The scenarios still show convergence to the 3.0% inflation target, indicative of the Sarb’s confidence in achieving its new goal.”
ALSO READ: Reserve Bank keeps repo rate unchanged at 7%
Interesting to see Fed cut repo rate by 25 basis points – will ensure stable rand
Citadel’s chief economist, Maarten Ackerman, says the decision reflects the Sarb’s cautious stance and its view that the outlook for inflation and growth remains balanced.” For South Africa’s highly indebted consumers, the decision offers little immediate relief.
“However, investors holding cash continue to benefit from some of the highest real yields globally, making South Africa an attractive destination for yield-seeking capital within a diversified portfolio.”
He also noted that it was interesting to see that the Sarb’s decision follows a 25 basis point rate cut by the US Federal Reserve. “This divergence widened the interest rate differential between South Africa and the US, potentially supporting the rand through increased carry trade appeal.
“Combined with sustained global demand for gold and a softer US dollar, this dynamic points to a stable rand heading into year-end.”
ALSO READ: After surprise dip in inflation, will we see a surprise repo rate cut?
Sarb wants to keep inflation closer to 3% than to 4.5% – reason for repo rate pause
Frank Blackmore, lead economist at KPMG, says the Sarb’s reasoning to keep the repo rate unchanged is that they believe it is beneficial to maintain consistency at the lower end of the target range. In other words, to keep inflation closer to 3% rather than 4.5%.
To achieve this meaningfully, Blackmore says inflation expectations must shift downwards from around 4.5% to 3%. Recent surveys indicate some progress, with expectations now hovering around 4.3%. However, there is still a significant way to go before they reach the 3% target, he says.
“As a result, the Sarb decided to clearly communicate this new target to help anchor expectations around the 3% level. At this stage, no further reductions in interest rates have been made. The benefit of setting a 3% target is that it signals a long-term expectation of lower inflation, which would, in turn, support a longer period of lower interest rates. This would be the ultimate payoff of achieving the 3% inflation goal.
“The Sarb anticipates a period of adjustment as expectations gradually move from the previous 4.5% level down to 3%. Once this transition is firmly established, further reductions in interest rates may be considered.”
ALSO READ: Inflation surprisingly slows in August 2025
Pausing repo rate cutting cycle sign of emerging improved economy
Harry Kellan, CEO of FNB, says the hold on the repo rate is a sign of an emerging improved economy. In making their decision today, the Sarb is maintaining stability to balance this requirement with wider economic considerations of sustainable growth. Keeping rates steady provides stability at a time when global and domestic conditions remain uncertain.
“With this we urge businesses and consumers to look beyond some of these uncertainties around tariffs, for business in particular, to diversify into new markets as trade routes change.
Mamello Matikinca-Ngwenya, chief economist at FNB, points out that interest rates are only one factor influencing confidence and the Sarb’s decision to keep rates unchanged places greater emphasis on other priorities such as boosting household incomes and creating employment opportunities.
Matikinca-Ngwenya says numerous positive developments indicate that both consumer and business optimism can improve in future. “These include recent stability and strengthening of the Rand/USD exchange rate, inflation remaining at modest levels and a sharp recovery in gold, platinum, and other resource prices,” she adds.
“We believe that the US tariffs on South African exports can be resolved and should not be viewed as a permanent or structural shift in our economy. At the same time, a widely anticipated US rate cut this month will create further opportunities for our own Sarb to lower rates in future.”
ALSO READ: Inflation expectations the lowest ever as GDP languishes
Cautious MPC stance not so much linked to repo rate as to getting inflation to 3%
Prof Raymond Parsons, economist at the NWU Business School, points out that the MPC decided by a 4-2 vote to again pause in its repo rate easing cycle for now. “The MPC saw the risks around the inflation outlook as balanced and inflation as now contained.
“The cautious stance by the majority of the MPC would therefore seem to be rather linked to wanting to keep rates higher for longer to entrench its preferred lower 3% inflation target. Yet there still seems to be continued uncertain circumstance around moving to the Sarb’s preferred lower 3% inflation target.
“The Sarb also again confirmed that there may be a short-term sacrifice in growth to attain the longer-term advantages of its 3% target. While there is widespread support that a lower inflation target should now be explored, it is therefore not yet entirely clear whether the necessary political support and ‘buy in’ has been secured for the inflation target change.
“The future level of borrowing costs is a crucial area of decision-making for the economy, for which a settled official inflation targeting framework is highly desirable for policy certainty. The sooner this is decided, the better.”
