No interest rate relief for South Africans

The South African Reserve Bank (SARB) opted to keep interest rates unchanged at its March meeting, as it remains concerned about upside risks to inflation.

The SARB’s Monetary Policy Committee (MPC) met this week to determine South Africa’s interest rates for the next two months.

SARB Governor Lesetja Kganyago announced on Thursday, 20 March 2025, that the committee voted to keep rates the same. This vote was not unanimous, as four members preferred to keep rates unchanged, while two favoured a cut of 25 basis points.

This means the repo rate will stay at 7.50%, while the prime lending rate will stand at 11.00%.

This is the first time the MPC has opted to pause the current rate cutting cycle, which has seen the committee implement three rate cuts so far.

The decision to keep rates unchanged comes despite a low inflation outcome in February, which saw CPI remain the same as it was in January at 3.2%.

This means inflation is within and toward the lower end of the SARB’s target range of 3% to 6%.

The current interest rate cutting cycle has seen the MPC implement 75 basis points of cuts since September 2024.

In the hiking cycle that preceded these cuts, the committee raised rates by a cumulative 475 basis points, which brought interest rates to 15-year highs.

While these hikes successfully tamed inflation in South Africa, the SARB remains hawkish about upside risks to the inflation outlook.

Therefore, many experts predicted the MPC’s decision on Thursday, with dissenting opinions leaning towards another 25 basis point cut.

The decision to keep rates unchanged does not signify an end to the cutting cycle, with the possibility of more cuts to come this year.

The SARB has repeatedly emphasised that its decisions remain data-dependent and not based purely on historical data but also on forward-looking projections.

Kganyago said in his announcement of Thursday’s decision that while inflation is still in the bottom half of the SARB’s target range, it has edged higher over the past few months.

“We continue to see low inflation for goods, which is likely to be temporary,” he said.

“Services inflation is somewhat higher but still below the 4.5% target midpoint. Inflation expectations are close to the midpoint. For now, inflation appears contained.”

However, the governor said that, in terms of its inflation outlook, there are more moving parts than usual, including a reweighting of the Consumer Price Index by Statistics South Africa.

He also highlighted the proposed value-added tax (VAT) increases announced in the 2025 Budget last week.

“The overall result of these changes is a marginally lower inflation outlook, with headline now projected at 3.6% this year and 4.5% next year,” he said.

“This is mainly due to the better fuel-price projections. It also reflects a more benign path for administered prices, given the lower electricity tariffs announced by NERSA in February.”

“These factors offset pressure from the proposed VAT increases, which we think will add about 0.2 percentage points to headline inflation.”

Overall, he said the MPC sees risks to its inflation forecast on both the upside and the downside, with the balance of risks in the medium term skewed to the upside.