By: Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano
Christmas comes early as MPC cuts rates at last meeting for 2025
The South African Reserve Bank's (SARB's) Monetary Policy Committee (MPC) unanimously voted to deliver a 25-basis-point (bp) rate cut at its November meeting, lowering the policy rate to 6.75%. This is a solid way to end a tumultuous year muddied by global and local policy uncertainty. For the South African market, this macroeconomic rebalancing, alongside our leadership of G20 priorities, should signal strength going into 2026 as policy aims at driving structural reform, reconstructing public institutions, and rebuilding financial buffers. Therefore, while monetary policy restrictiveness is unlikely to unwind quickly, the lifting of structural constraints will make SA more competitive, reduce the burden of high inflation and borrowing costs, and embed sustainability into our long-term economic prospects.
The global economy proves resilient
Despite the unruly trade recalibration experienced this year, global economic activity has been resilient. In line with this, the MPC raised its trading partner growth forecast by 0.2 percentage points (ppts) for this year, with multisector reforms eliminating economic slack over the period to 2028. This will be further supported by easing inflation and policy rates, especially as supply-side dynamics are expected to become more favourable with softening commodity prices and the importation of disinflation from the East. For emerging markets, continued resilience in capital inflows, improved terms of trade, and what could be a cyclically weaker dollar should reinforce the positivity.
SA's prospects are hinged on reforms
SA's economy started the year on the back foot, with weak industrial activity. Fortunately, 2Q25 GDP growth surprised to the upside and high-frequency indications for the 3Q25 performance are encouraging. In line with this, the SARB has revised its 2025 forecast to 1.3%, slightly up from 1.2%, with growth projected to approach 2% over the forecast horizon. Consumer spending will remain the bedrock for activity, with growth upheld by wealth effects and rising disposable incomes. What has been less forthcoming is capacity-driven investments, but with traction in reforms, these are expected to recover from 2H26. The SARB assesses risks to the growth outlook as broadly balanced.
Reforms should also translate to a lower cost of doing business, further sustaining softer inflation. In the meantime, it is paramount that inflation expectations are guided lower. Without the benefit of rand strength and import price compression, administered price pressures and sticky wage-setting behaviour will reduce the odds of downside surprises to inflation forecasts. For now, the SARB has made modest downward revisions to its near-term outlook and views risks as balanced.
The bottom line
It is clear to us that reforms (lower administered inflation), fiscal credibility (reduction of sovereign risk), and central bank credibility (lower inflation expectations) are all key to achieving the 3% target sustainably without an excessive cost to the economy. Therefore, we see a rise in potential growth over the forecast, a closing output gap, a less depreciated rand, lower inflation, and a lower neutral interest rate reflecting multi-departmental reforms that offer hope beyond the challenges of the past decade.
Week in review
Headline inflation was recorded at 3.6% y/y in October, up from 3.4% in September. Monthly pressure was 0.1% driven by rising services costs. Core inflation was 0.1% m/m and 3.1% y/y, down from 3.2% previously. Services inflation recorded 0.2% m/m and 4.0% y/y. Core goods inflation was -0.1% m/m and 1.0% y/y. Average fuel prices rose by 0.1% m/m and were 3.3% higher than at the same time last year. Food and non-alcoholic beverages (NAB) inflation recorded 3.9% y/y, down from 4.5% previously, supported downwards by contracting vegetable prices. We see the November headline inflation print at 0.1% m/m and 3.7% y/y; however, food and NAB inflation present risks to this expectation. Ultimately, headline inflation is expected to stay below 4% over the next year, comfortably within the tolerance band, before easing toward 3% in the medium term.
Retail sales accelerated in September, coming in at 3.1% y/y, up from 2.2% in August. On a month-on-month basis, volume sales were flat. However, total sales volumes rose 0.9% q/q in 3Q25, up from 0.6% in 2Q25. This suggests that retail activity made a positive contribution to GDP growth in the third quarter. The resilience in retail, particularly in non-essential categories, reflects improving household purchasing power and stronger balance sheets, alongside a less restrictive monetary policy.
Week ahead
On Tuesday, the Leading Business Cycle Indicator for September will be published. In August, it rose by 1.6% m/m to 115.5 points, following a 1.2% increase in July. The rise was supported by gains in eight of the ten available components, with the largest contributions coming from a rise in the amount of residential building plans approved as well as an acceleration in the growth rate in the job advertisements space. The biggest mitigators were a weakening in the RMB/BER Business Confidence Index and a narrower interest rate spread.
On Thursday, producer inflation data for October will be released. In September, producer inflation accelerated to 2.3% y/y from 2.1% in August. On a monthly basis, prices declined by 0.1%, down from 0.3% in the prior month. While food prices continue to drive headline inflation, significant increases were recorded in other categories such as furniture and other manufacturing, paper and printed products, and coke and petroleum-related products.
On Friday, data on Private Sector Credit Extension (PSCE) for October will be released. PSCE increased slightly to 6.0% y/y in September, from 5.9% in August. Although still subdued, household credit growth was mainly driven by general loans and advances and mortgages. On the other hand, corporate credit led the surge, driven by loans and advances, vehicle asset finance, and credit card advances. Nevertheless, monetary policy remains restrictive, ultimately weighing on lending appetite and credit uptake.
Also on Friday, the trade balance for October will be published. The trade balance recorded a surplus in September of R21.8 billion versus a R4.0 billion surplus in August. The September outcome reflected a 9.4% m/m increase in exports, while imports fell by 2.0%. Year-to-date, the trade surplus stands at R121.5 billion versus R134 billion in the comparable period last year.
