05 FEB 2025

Inflation continues to moderate

by Raymond Parsons: Professor at the NWU School of Business & Governance and a former special policy adviser to Busa.

As widely expected, the MPC, at its latest meeting by a 4 - 2 vote again cut interest rates by another 25 bps. The better news on the inflation front is gradually being translated into lower interest rates, thus modestly easing borrowing costs for businesses and consumers. With inflation now expected to converge well within the SARB’s 3%-6% target range in the period ahead, the recent winding down in the rate of inflation has therefore created the space for the interest rate cutting cycle to continue this year.

Hence, although future MPC decisions are said by outlook dependent, further cuts in borrowing costs this year would nonetheless further underpin consumer and business confidence. Monetary policy is still in restrictive territory and - given the present slow and uneven economic recovery in SA - needs to be further supported by lower borrowing costs wherever possible. GDP growth is generally expected to rise to around a modest 1.7% in 2025 and the MPC itself expects GDP growth to reach 2% only by 2027.

However, as emphasised in the MPC statement, the global economic outlook is now nevertheless becoming increasingly uncertain in the medium-term. MPC warns that the tariff and related policies announced so far by the new US Trump administration have injected a large element of unpredictability into the global inflation and interest rate outlook, including for SA. If renewed inflation does eventually develop in the US, this will influence the US Fed’s monetary policy and possibly mean ‘higher-for-longer’ global rates.

MPC research revealed today has also now nevertheless confirmed the extent to which, in the event of accelerated structural reforms in SA, offers instead the prospect of a much higher 3% GDP growth (with low inflation) by 2027. Economic policy must therefore urgently implement growth-friendly policies and projects that strengthen SA’s economic performance in the years ahead.

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