The SARB’s decision to deliver a cautious 25bp rate cut, despite subdued inflation, underscores its conservative approach to navigating current global uncertainties. Governor Lesetja Kganyago emphasized emerging price risks in his forward guidance, saying, “As a central bank in a small, open economy, caution is what is going to be in play here”. This approach aligns with prioritizing long-term credibility over short-term accommodative measures.
Regarding the SARB’s model assumptions, headline CPI inflation is forecast to end the year at 3.2%, down from the 3.6% forecast at the previous MPC meeting. Similarly, headline CPI forecasts for H1 2025 were revised lower to 3.5% y/y and 3.8% y/y, respectively. Despite the downward revisions in inflation forecasts, the SARB raised its 2025 year-end repo rate projection from 7.17% to 7.40% (vs 7.75% currently). This was significant as it signalled the SARB only expects to reduce rates one more time next year, with an outside chance of a second cut. It is evidently wary of price risks related to potential changes in global trade dynamics, as well as the impact of higher administered electricity prices and pension withdrawals under the two-pot retirement system.