Economists say repo rate cut likely in September despite July Monetary Policy Committee meeting
Inflation Eases to 3%: What This Means for South Africa
South Africa’s annual inflation rate remained contained in June 2025, rising only slightly by 0.2% to 3.0%. This level is comfortably below the South African Reserve Bank’s (SARB) 4.5% target midpoint and reflects a trend of price stability that’s been building throughout the year.
Despite the inflation outlook providing a strong case for a reduction in interest rates, economists believe the Monetary Policy Committee (MPC) will hold off on cutting the repo rate until September. The next MPC meeting is scheduled for the final week of July, but analysts argue the timing is not yet ripe for monetary easing.
Economists Urge Patience Until September Cut
Jee-A van der Linde, senior economist at Oxford Economics Africa, says the current trend aligns with their projections that inflation would average around 3.4% in 2025. He notes that although inflation rose slightly in June, it was expected. “Our forecast hasn’t changed. We still believe SARB will cut the repo rate by 25 basis points in the third quarter,” said Van der Linde.
The South African Reserve Bank’s Monetary Policy Committee plays a critical role in setting borrowing costs, and any move to lower rates could provide relief to overburdened consumers and small businesses.
Core and Goods Inflation Offer Encouraging Signs
Core inflation, which excludes volatile food and fuel prices, dipped to 2.9% in June from 3.0% in May. Goods inflation ticked up slightly to 2.3%, while services inflation rose modestly to 3.7%. These relatively stable numbers point to an economy that’s not under severe inflationary pressure.
The Consumer Price Index (CPI) for June showed a 0.3% monthly increase, slightly above May’s 0.2%, suggesting a mild upward trajectory, but still within control.
Food and Housing Lead June Inflation Drivers
The main contributors to inflation in June were food and non-alcoholic beverages (+5.1%), housing and utilities (+4.4%), and alcohol and tobacco (+4.4%). Notably, beef and other meat prices soared by 6.6%, largely due to the foot-and-mouth disease outbreak in livestock-producing regions.
These food-related pressures are expected to persist into the second half of the year, especially with the July municipal utility price hikes already impacting consumer bills.
Fuel Price Relief Could Be Temporary
While fuel prices were 11.2% lower year-on-year in June, early indicators from the Central Energy Fund (CEF) suggest petrol prices could decline slightly in August, whereas diesel prices may continue climbing. The full inflationary impact of fuel increases will likely show up in July’s data, possibly raising the headline rate to 3.5%.
This adds a layer of complexity for the SARB, as policymakers must weigh global oil trends, local supply chains, and rand strength in their decision-making.
FNB’s Forecast: Rate Cut in September Still Likely
Koketso Mano, senior economist at FNB, projects July inflation to rise to 3.6% due to higher utility and food costs. Mano adds that while soft inflation is helped by low oil prices and a stronger rand, pressure from food and fuel costs could prompt SARB to pause in July but proceed with a rate cut in September.
“Given the economic environment and contained inflation expectations, we see space for one more cut in the cycle,” said Mano. FNB anticipates headline inflation to average 3.5% in 2025.
Global Environment Weighs on SARB Decisions
One of the key considerations for the MPC is the global economic outlook. Volatile commodity prices, ongoing geopolitical tensions in the Middle East, and the US Federal Reserve’s policy stance all influence SARB’s decisions.
Should the US Federal Reserve opt for a rate hike or remain hawkish, SARB may choose to delay its cut to maintain financial market stability and avoid a weakening of the rand.
Nedbank Sees a Case for Immediate Rate Cut
Economists Busisiwe Nkonki and Johannes Khosa of Nedbank argue that despite rising food and fuel prices, the overall inflation trend is still benign. They believe SARB could use the July meeting to implement a 25 basis point cut, especially considering weak domestic demand and a resilient rand.
However, they caution that the MPC might err on the side of caution and wait until September if the global outlook becomes more uncertain.
Rand Strength and Oil Prices: A Delicate Balance
The stronger rand in recent weeks has offset the temporary spike in oil prices, helping to cushion local inflation. But both variables remain vulnerable to shocks. The Brent crude oil price fell back to $70 per barrel in July after briefly surging to $80, highlighting the volatility that policymakers must navigate.
Maintaining a stable currency and manageable fuel prices will be key in ensuring inflation stays within target for the remainder of 2025.
Final Outlook: Inflation Low, Cut Coming Soon
Despite near-term risks, economists are confident inflation will stay around 3.4%–3.6% for the year. The repo rate is expected to remain unchanged at the upcoming MPC meeting, but will likely be cut in September—bringing some much-needed relief to households, businesses, and credit markets.
For more updates on interest rates and inflation news, check out What’s on G’s Finance section.
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