Some good news for interest rates in South Africa

South Africa’s inflation expectations eased in the third quarter, providing some relief for the South African Reserve Bank (SARB) ahead of its next interest-rate decision next week.

Average inflation expectations two years ahead declined to 3.8%, from 3.9% in the previous quarter, according to the latest survey by the Stellenbosch-based Bureau for Economic Research (BER).

The measure is closely watched by the SARB because expectations can influence wage demands and businesses’ pricing decisions. The central bank has also said it wants inflation to move towards its 3% goal.

The latest figures come as policymakers prepare to meet on Wednesday, 23 September to decide whether to keep the repo interest rate at 7% – and the prime lending rate at 10.5%.

Rate decision in focus

The lower inflation expectations could give the SARB’s Monetary Policy Committee (MPC) some additional room to consider the state of the economy, which contracted by 0.2% in the second quarter after six consecutive quarters of growth.

However, inflationary risks remain.

The Middle East conflict has pushed up energy costs, while higher oil and fertiliser prices could feed through into transport, food and other consumer prices.

The SARB has previously warned about the effects of overlapping economic shocks and the risk of second-round inflationary pressures.

Recent inflation data have also shown some moderation. Consumer inflation reached 5% in June before easing to 4.3% in July.

The latest BER survey showed that longer-term expectations also moderated. Forecasts for headline inflation in 2027 and 2028 declined to 4.0% and 3.8%, respectively, from 4.2% and 3.9%.

Markets still divided

Despite the improvement in expectations, financial markets are not ruling out another interest-rate increase.

Forward-rate agreements were pricing in a roughly 52% probability of a 25-basis-point increase, down from 56% a day earlier.

That leaves the September decision finely balanced, with policymakers having to weigh easing inflation expectations and weak economic growth against renewed pressure from energy prices.

The SARB has maintained a cautious approach to the effects of what Governor Lesetja Kganyago has described as multiple overlapping shocks.

For households and businesses, the decision will be closely watched after the policy rate was raised to 7% in May and then left unchanged at the July meeting.

The latest inflation-expectations data therefore offer policymakers some positive news, but the outlook remains highly dependent on global oil prices, the rand and the continuing impact of the Middle East conflict.

Dates for SARB MPC meeting dates in 2026

Month	Date	Outcome
January	29 January	No change
March	26 March	No change
May	28 May	25 bps hike
July	23 July	No change
September	23 September	TBA
November	19 November	TBA