The South African Reserve Bank (SARB) left its repo rate unchanged at 7% yesterday, in line with a call made earlier by The Common Sense. The pause comes as policymakers weigh global uncertainty and prepare to shift to a lower 3% inflation target.

The decision was split, with four members of the SARB’s Monetary Policy Committee (MPC) voting to hold and two favouring a 25 basis points cut. Since September 2024, the SARB has reduced rates by a cumulative 125 basis points, but the committee signalled a need to “pause and assess” how the easing cycle is feeding through to growth, expectations, and inflation risks.

Governor Lesetja Kganyago pointed to a brighter near-term outlook after last week’s GDP figures delivered the fastest quarterly expansion in two years. “The strong GDP report was welcome, but we do not want to overstate the importance of one good quarter,” he said. “We continue to see modest output gains over the next few years, helped by structural reforms. There are also some cyclical indicators, such as credit extension, which look positive. However, reaching a healthy growth rate will require much higher investment levels than we are achieving now.”

Reflecting the stronger data, the SARB raised its 2025 growth forecast from 0.9% to 1.2%, though Kganyago warned weaker exports and tariff headwinds will weigh on momentum.

On inflation, the central bank expects consumer prices to peak near 4% in coming months before easing back towards the target of 3%. “Our forecast now incorporates higher electricity price inflation of nearly 8% rather than 6%, given the recent pricing correction by NERSA,” the bank noted [NERSA refers to the National Energy Regulator of South Africa]. “This is a reminder of the serious dysfunction in administered prices, which undermines purchasing power and weakens growth. The solution to this crisis is not a higher level of inflation, but rather sector-specific reforms to improve efficiency.”