Good news for interest rate cuts in South Africa

South African annual inflation unexpectedly softened in November, edging closer to the central bank’s new 3% target and boosting hopes for an interest-rate cut next month.

Consumer prices rose 3.5%, compared with 3.6% a month earlier, Pretoria-based Statistics South Africa said in a statement on its website on Wednesday. Only four of 11 economists in a Bloomberg survey expected a slowdown. Prices fell 0.1% in the month, against forecasts for no change.

The rand pared an earlier loss against the dollar after the data release to trade little changed, while the yield on the benchmark 10-year government bond fell 13 basis points to 8.37%. 

The outcome is another dose of good news for the South African Reserve Bank after inflation expectations two years ahead — a key guide for monetary policy — fell to a record 3.7% in the fourth quarter, moving closer to its 3% target and strengthening the case for a rate cut on Jan. 29.

Finance Minister Enoch Godongwana announced the formal shift to the lower target last month.

“South Africa’s inflation has likely peaked,” and will probably remain steady at current levels through year-end before slowing over the following two quarters, said Yvonne Mhango, Bloomberg’s economist for Africa.

“This outlook provides scope for the Reserve Bank to begin cutting rates in the first quarter of 2026.”

Traders are still pricing in a 50% chance of on an interest-rate cut at the conclusion of the central bank’s meeting next month. The central bank’s benchmark rate is currently 6.75%.

Annual inflation eased in five of the 13 product categories, including transport, recreation, sport & culture, and information and communication, the statistics office said. Four categories had no change, and food & non-alcoholic beverages, restaurants & accommodation services, and alcoholic beverages & tobacco recorded higher rates, it said.