Economists split on SARB’s MPC repo rate decision

All eyes are on the South African Reserve Bank (SARB) on Thursday, as economists are split on the repo rate decision in the final meeting of the Monetary Policy Committee (MPC) for 2025.

The MPC will wrap up its deliberations on the central bank’s benchmark policy rate later in the afternoon, marking the biggest domestic economic event for the week.

Some economists have labelled it as the conclusion of a period marked by elevated uncertainty and market volatility.

While 2025 was expected to be turbulent, economists at FNB said the path to a 7% repo rate was initially projected to be smooth, anchored by three consecutive 25 basis point cuts early in 2025.

However, external shocks from the new United States (US) administration’s tariff policies and South Africa’s fraught budgeting process disrupted this path, prompting a pause in March.

Despite these headwinds, inflation surprised to the downside and the rand held steady, allowing the MPC to resume rate cuts in May and July.

While some market participants think the next cut could be as early as this November meeting, FNB said the MPC is more likely to hold rates steady.

“With a limited probability of compelling data in the next six months, a premature cut could undermine credibility and complicate the future policy stance. However, this view is not without risk, as there is no clear consensus on how restrictive policy must be to guide expectations effectively. If rates are too tight, they may suppress inflation but at a destructive cost to economic growth and political stability.”

The Bureau for Economic Research said if the SARB does cut the repo rate, it doesn’t mean there will be consecutive interest rate declines in the next couple of meetings.

“The SARB is likely to keep a close eye on inflation expectations, its CPI forecast and will fine-tune policy as risks emerge and subside.”

The latest decision comes after inflation inched up marginally to 3,6% in October - from 3,4% in September - which is still some way above the new inflation target of 3%.

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