Reserve Bank announces interest rate cut for South Africa

The Reserve Bank’s Monetary Policy Committee (MPC) has voted to cut interest rates by 25 basis points, citing lower inflation in the country.

Reserve Bank Governor Lesetja Kganyago announced on Thursday, 31 July, that interest rates will be cut by 25 basis points, bringing the repo rate to 7% and the prime lending rate to 10.50%.

The decision to cut rates by 25 basis points was unanimous and comes after another low inflation outcome in June, which saw CPI at 3%.

While this is up slightly from 2.8% in May 2025, it is still within the central bank’s target range of 3% to 6%. The Reserve Bank expects inflation to average around 3.3% in 2025.

The July cut marks the fifth in the current cutting cycle, which has seen rates decrease by a cumulative 125 basis points.

In the hiking cycle that preceded these cuts, the MPC raised rates by 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, experts widely believe that this July cut will be South Africa’s last in 2025, with geopolitical uncertainty and upside risks to the inflation outlook prevailing.

Kganyago specifically highlighted the risks posed by United States tariffs on South African goods, which are set to be implemented in August.

“There are risks that permanently higher tariffs, or adverse geopolitical developments, could cause more disruption to the global economy than we have seen so far this year,” he said.

He added that, while inflation is still at the bottom of the central bank’s target range, food inflation has risen and fuel prices are falling more slowly compared to the recent past.

“We therefore expect headline inflation to rise over the next few months, averaging 3.3% for the year, in line with our earlier forecasts,” he said. “Prices then stabilise around the target objective over the rest of the forecast period.”

In addition, the Reserve Bank and the National Treasury have been in talks to discuss the possibility of lowering and narrowing South Africa’s inflation target to around 3%.

This shift would see South Africa have higher interest rates for longer, but, in the long term, the country could reap the benefits of lower inflation and interest rates.

Kganyago said the MPC now prefers inflation to settle at 3% and, in line with this target, has decided to aim for the bottom of its inflation target range.

“We welcome the recent moderation in inflation expectations and would like to see expectations fall further. This would expand policy space and make our framework more robust to shocks,” he said.

“We will use forecasts with a 3% inflation anchor at future meetings. The South African Reserve Bank will also continue working with the National Treasury to complete target reform and achieve permanently low inflation.”

The July cut was highly anticipated, with most economists in a Bloomberg survey expecting a 25 basis point reduction. Prior to the announcement, traders also priced in an 84% chance of a quarter-point cut.