South Africa: SARB kicks off long-awaited loosening cycle in September
First rate cut in four years: At its meeting on 19 September, the South African Reserve Bank (SARB) decided to reduce the repurchase rate by 25 basis points to 8.00%. The reduction, which was the first since 2020, had been priced in by markets.
Improved inflationary outlook: The decision to begin cutting rates was driven by inflation recently moving closer to the midpoint of the 3.0–6.0% target band, and the Bank downwardly revising its forecasts for both headline and core inflation for 2024–2026; price pressures are expected by the Bank to average below 4.5% in both 2025 and 2026. Moreover, output was below the SARB’s projections in H1, and investment remained a concern as it has contracted for four quarters in a row, suggesting monetary stimulus might be needed to support the economy.
Regarding activity, the SARB kept its 2024 GDP growth forecast unchanged at 1.1%, and upped its projections for both 2025 and 2026 by 0.1 percentage point to 1.6% and 1.8%, respectively.
Market expects another same-sized cut in Q4: In its forward guidance, the SARB suggested the repurchase rate could stabilize slightly above 7.00% in 2025, but reiterated that decisions will remain data-dependent and conditional on the balance of risks to the inflation outlook. All of our panelists—bar one—have penciled another 25 basis points of cuts at the SARB’s next and final meeting of the year, scheduled for 21 November.
Panelist insight: Andrew Matheny, economist at Goldman Sachs, said:
“Given the downside surprises to South African inflation in recent months, strengthening of the Rand, and supportive external backdrop, we revise our policy rate forecast by front-loading rate cuts (maintaining the same terminal rate forecast of 6.5%). […] Our new forecast implies that the terminal rate will be reached in Q3 2025 as compared to Q1 2026 previously.”