Repo rate cut not a done deal, say some economists

Some economists said a repo rate cut is not a done deal after annual inflation dropped to a three-month low in August.

Annual consumer price inflation (CPI) eased to 3.3% in August from 3.5% in July.

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Statistics South Africa (Stats SA) released the latest inflation print on Wednesday.

The drop brings it slightly closer to the South African Reserve Bank (SARB)’s new 3% target as the central bank' Monetary Policy Committee (MPC) prepares to announce the latest repo rate decision on Thursday.

This will be the first time the SARB's new preferred inflation target is put to the test.

In July, the SARB took an unexpected decision to revise its inflation target down to 3% on the lower end of its inflation target band of 3.6% instead of the midpoint.

At the time, Minister of Finance Enoch Godongwana took exception to the what he described as a unilateral and pre-emptive announcement, although efforts continue for the central bank and the National Treasury to find consensus on the matter.

Chief economist at Sanlam Investments Arthur Kamp said the latest inflation data has raised the odds for Thursday’s repo decision, but there’s still no guarantee.

“Recently released inflation expectations for the Q3 survey indicate that, yes, encouragingly, inflation expectations are lower. However, at 4,2% for 2026 and 2027, average inflation expectations still remain higher that the bank’s new preferred target of 3%.

“Further, higher real interest rates are likely to be required to guide inflation and maintain lower at 3%, while real inflation increases the value of government debt, which speaks to the question of fiscal sustainability.”

While some economists believe there’s room for one more 25 basis point cut in 2025, economists at FNB believe interest rates are likely to remain unchanged in the two final MPC meetings.

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