The 4 to 2 majority decision by the Monetary Policy Committee (MPC) on 29 January to pause its interest rate easing cycle and leave the repo rate unchanged for now was widely expected.
Prof. Raymond Parsons, economist from the North-West University (NWU) Business School, says the MPC majority view provided a plausible case as to why it was considered necessary to further entrench inflationary expectations amid ongoing global uncertainty before making a further cut in borrowing costs for businesses and consumers.
“The MPC statement outlined the various factors that shaped its assessment of the risks to the inflation outlook as being ‘balanced’. However, the minority MPC view had a more convincing case for an immediate rate cut of another 25 basis points (bps).”
According to Prof. Parsons, the latest data indeed showed that the inflation outlook had improved sufficiently to justify earlier policy relief, rather than extending the pause. He explains that the MPC statement itself emphasised that inflationary expectations are now at their lowest level in years.
“Despite a mild recent uptick in the consumer price index (CPI), inflation is therefore generally expected to remain comfortably within the 2% to 4% target range, indicating that inflation is increasingly becoming anchored.”
He says that with the South African Reserve Bank (SARB) committed to a gradual and flexible transition toward a 3% inflation target, disinflationary forces are likely to continue to prevail.
“The balance of risks to the inflation outlook could therefore now instead be reasonably described as tilted to the downside. Real interest rates in South Africa also remain relatively high by global standards, with the MPC statement conceding that monetary policy remains in restrictive territory. The gross domestic product growth forecast of the SARB for 2026 is still only 1,4%.”
Prof. Parsons concludes that the good news is that the latest statement by the MPC confirms that, on present trends, lower borrowing costs for businesses and households still remain likely over the course of 2026 – even if further policy easing is deferred for now.
