(Allan Swart/Getty Images)
South African inflation expectations for the next two years edged closer to the 4.5% midpoint of the central bank’s target range, reinforcing the case for interest rate cuts to start this month.
Average inflation expectations two years ahead — which the bank’s monetary policy committee uses to inform its decision-making — fell to 4.8% in the third quarter from 4.9% previously, according to a survey released on Thursday by the Stellenbosch-based Bureau for Economic Research.
Businesspeople and labour officials lowered their inflation forecasts for the entire three-year horizon that the BER survey covers. Analysts kept their expectations unchanged for 2026 but lowered them for this year and next.
Central bank Governor Lesetja Kganyago has repeatedly said the monetary policy committee will only adjust its policy rate, which has been held at 8.25% since May 2023, once inflation is sustainably at 4.5%, where the MPC prefers to anchor expectations.
Cooler expectations add to other positive news that analysts believe will persuade officials to lower interest rates by 25 basis points after their meeting on September 19, cutting South African borrowing costs for the first time since the height of the coronavirus pandemic in 2020.
Factors pointing in this direction include a cooling in price pressures to an annual rate of 4.6% in July, which lifted South Africa’s real, or inflation-adjusted interest rates to an 18-year high.
Widespread expectations that the Federal Reserve will lower US borrowing costs on September 18 are also seen creating space for the central bank to act, by loosening global financial conditions and potentially easing pressure on the rand, and hence on import prices.
Forward-rate agreements are fully pricing in a chance of a 25-basis-point rate cut this month, and at the November meeting.
The survey respondents still expect interest rates to be cut 50 basis points this year and increased their forecast for 2025 to 75 basis points from half a percentage point previously.
