The South African Reserve Bank (SARB) cut its benchmark interest rate by 25 basis points last week, bringing it down to 7%. The move, unanimously agreed upon by all six members of the Monetary Policy Committee (MPC), aligned with market expectations in the lead-up to the announcement. The rate reduction comes amid growing concerns over a new US tariff regime, which poses fresh risks to an already fragile South African economy. Policymakers highlighted the ongoing uncertainty in global markets, noting that many countries have yet to secure new trade deals ahead of the new reciprocal tariffs deadline on 7 August 2025.

According to BusinessTech, SARB Governor Lesetja Kganyago stated that global economic conditions remain volatile in light of the US’s aggressive trade stance. He said, South Africa continues to face mounting pressure and reiterated that the Bank had previously warned of weak local economic data, a point underscored by the latest GDP figures released by Stats SA, which included a downward revision to growth projections for 2024. The MPC’s decision was further supported by a firmer rand and more subdued inflation expectations. June’s Consumer Price Index (CPI) revealed headline inflation at 3% and core inflation at 2.90% - both hovering near the lower bound of SARB’s target range. Inflation is projected to edge up slightly to 3.30% in 2025 before settling back to 3% by 2027.

In its July 2025 statement, the MPC stressed that the challenging global environment underscores the urgent need for structural reform at home to unlock economic growth. The SARB reaffirmed its central mandate of ensuring price stability, noting that current conditions present a rare opportunity to entrench low inflation and pave the way for a more sustained period of lower interest rates. The statement also outlined broader economic measures essential to improving domestic conditions. These include reducing public debt to more sustainable levels, enhancing the efficiency of network industries, curbing inflation in administered prices, and aligning real wage growth with productivity improvements.

While inflation has remained within the target range, the Bank noted a recent uptick in food inflation - largely driven by rising meat prices - while declines in fuel prices have slowed compared to earlier in the year. Consequently, headline inflation is expected to climb modestly in the coming months, averaging 3.30% for 2025, in line with prior forecasts. From 2026 onward, inflation is anticipated to stabilise around the midpoint of SARB’s target range.

South Africa’s interest rate

Bottom Line

The interest rate cut provides a much-needed reprieve to economic participants who have been under sustained pressure. Economic growth has lagged as real interest rates remain high, and we believe there is still scope for further cuts — especially if the dollar continues to weaken.

Macroeconomics in brief