All Eyes on SA Reserve Bank: What to expect from July’s MPC meeting

As South Africa’s economic landscape shifts with increasing complexity, all eyes are on the South African Reserve Bank’s (Sarb) Monetary Policy Committee (MPC) as it prepares for its pivotal interest rate decision at the end of July.

If the MPC bases its decision purely on data, the country could enjoy a rate cut, however, many other factors are at play which could see interest rates remaining unchanged at the end of the month, offering no financial relief for consumers battling the cost of living crisis in the country. 

The current repo rate sits at 7.25%, following a slight reduction of 25 basis points earlier in May.

Despite the central bank's move, Governor Lesetja Kganyago has continued to adopt a hawkish stance, underscoring the significance of maintaining price stability and addressing inflation risks.

Recent data paints a somewhat brighter picture, with inflation now stabilising within Sarb's targeted range of 3%–6%.

Notably, the headline Consumer Price Index (CPI) dropped from 5.6% in April to 5.2% in May, indicative of subdued demand-side pressures on the economy.

Frank Blackmore Lead economist at KPMG told Business Report that there are several factors the MPC will need to consider ahead of the meeting, the most important being the current state of inflation in the country.

"Inflation has remained below the lower band at 2.8%. Therefore, in a purely data-driven process, one might expect there to be room for a 25 basis-point reduction at the end of the month. However, the decision is not that straightforward. Inflation expectations are currently closer to the 4% mark," Blackmore said. 

"The Reserve Bank has also raised the possibility of lowering the inflation target, from the current midpoint of 4.5% within the 3–6% target band, down to 3%. If this is the case, and the aim is to bring inflation expectations down to that level, interest rates may need to remain slightly higher for longer. This could mean that rates remain unchanged until the end of the year to ensure inflation expectations are aligned with the revised target.In addition, developments among our trading partners, particularly with countries like the United States, must be considered," Blackmore added.

Neil Roets, CEO of Debt Rescue said that the country stands at a critical economic juncture.

"The imminent threat of a 30% tariff on exports to the United States, currently set to take effect on 1 August, could have far-reaching consequences, including sharp decline in export demand, coupled with a weakening rand, which may increase the cost of imports, placing fresh upward pressure on prices, particularly on essentials like food and fuel," Roets said.

Blackmore added, "Following the imposition of tariffs under President Trump, there is a market assumption that US inflation figures for June will show an uptick due to those tariffs. This would reduce the likelihood of any rate cuts in the US and, in turn, make a local rate reduction less likely as well. There are three key areas influencing the decision: 1. Current inflation and inflation expectations, which could support a rate cut; 2. The potential revision of the inflation target to 3%, which may justify holding rates steady; 3. External factors, such as the inflationary impact of US tariffs, which could also reduce the likelihood of a rate cut."

Roets said that this comes at a time when most South Africans are already financially stretched.

"At Debt Rescue, we continue to see how families are cutting back on even the most basic necessities. Food inflation stood at 4.8% in May, contributing significantly to overall inflation and further eroding household budgets. For many consumers, the financial margin has disappeared, leaving no space for savings, and mostly not enough to cover essentials," Roets said.

"Sarb must now navigate a very delicate path. While inflation is currently within target and the repo rate sits above the neutral level, suggesting that there could be room for further easing, the global economic outlook is volatile. The U.S. tariff threats, shifting interest rate expectations abroad, and domestic price pressures all complicate the decision-making process. The upcoming Consumer Price Index (CPI) data, due on 23 July, will be one of many indicators informing the final call," the Debt Rescue CEO further added.

Roets said, "A further rate cut would offer desperately needed relief to consumers, particularly the over-indebted, who are struggling to meet their monthly obligations. However, the Sarb’s mandate is currency stability, and if risks to inflation mount, the Bank may be compelled to hold steady. While a cut would be welcome, especially by struggling households, the decision remains highly uncertain. With so many competing domestic and international pressures at play, predicting the outcome has become extremely difficult. The SARB will need to weigh a wide range of micro and macroeconomic factors before making its final decision." 

For businesses and consumers already navigating tight margins in this sluggish economy, a rate cut would provide much-needed relief. Reduced borrowing costs could stimulate demand for credit, boost consumer spending, and encourage greater business confidence, though the measurable impact would likely take time to manifest across the economy. Despite these pressures, experts maintain that the Sarb will remain vigilant, focusing on data rather than light-hearted reactions to short-term dynamics. Annabel Bishop, Chief Economist at Investec, summarised the sentiment concisely: “We expect the Bank to remain cautious and data-dependent.” Yet, she noted, if inflation continues its downward trajectory, a cut could feasibly come as early as September.

The forthcoming MPC decision is set to capture the attention of investors, businesses, and policymakers, with prevailing forecasts hinting at holding the rate steady at 7.25%.

As stakeholders keenly await the meeting’s outcomes, all eyes will be on the Sarb for any indications of the timing and nature of potential monetary easing.

BUSINESS REPORT