Interest rates fall to 7% for South Africans – here’s how it affects you
South African Reserve Bank building with interest rate and inflation graph overlay.
In a move that many economists anticipated, the South African Reserve Bank (SARB) has cut the repo rate by 25 basis points, reducing it to 7% — the lowest level seen since the end of 2022. The prime lending rate has also dropped to 10.5%. This is the second rate cut in 2025, offering modest relief to debt-burdened consumers as economic uncertainty mounts.
All six members of SARB’s Monetary Policy Committee (MPC) voted unanimously in favour of the cut, reinforcing analysts’ expectations that there was scope for easing, despite a recent uptick in inflation. The decision arrives in a turbulent global environment, with US import tariffs set to rise sharply—from 10% to 30%—on a wide range of South African exports starting this Friday.
A Delicate Balancing Act
The July policy meeting came against a backdrop of global policy uncertainty and external risks, largely driven by trade tensions with the United States. Despite these challenges, domestic inflation remains relatively contained, climbing only slightly from 2.8% in May to 3% in June. This is still well below SARB’s previous target midpoint of 4.5%.
Economists from Nedbank and Sanlam Investments agree that inflationary pressures are modest and isolated. While food and administered prices could present upward pressure in the second half of the year, the broader picture remains benign. “Overall, we expect inflation to remain within the Reserve Bank’s target of 3% to 6%,” said Sanlam’s Patrick Buthelezi.
A New Inflation Target on the Horizon?
SARB Governor Lesetja Kganyago indicated a significant shift in the central bank’s monetary policy outlook. While the official inflation target band remains at 3% to 6%, the MPC will now aim more explicitly for the lower end of the range. “The MPC now prefers inflation to settle at 3%,” Kganyago stated, signalling a clear move toward adopting a 3% inflation anchor.
This new target may prove pivotal for long-term monetary policy. Although formally lowering the target requires consultation between SARB and the National Treasury, Kganyago made it clear that the central bank intends to pre-emptively shape expectations. “Over the past few months, the prospect of a lower inflation target has bolstered the rand and lowered long-term borrowing costs,” he noted.
KPMG’s lead economist Frank Blackmore warned that aligning inflation expectations with this stricter target may require interest rates to remain stable through year-end.
Growth Outlook and External Pressures
While SARB had recently observed some signs of economic recovery, it has now revised its growth projections downward for both 2025 and 2026. The Bank expects GDP growth of just 0.9% this year, compared to the previous 1% forecast, citing the impact of escalating US trade tariffs. The 2026 projection was trimmed to 1.3%, though 2027 expectations were revised upwards to 2.0%.
The looming US tariffs pose a particular threat to South Africa’s agricultural and automotive industries. Governor Kganyago previously warned these measures could cost the country up to 100,000 jobs.
What the Rate Cut Means for You
For consumers, this rate cut offers modest but welcome relief. For instance, monthly repayments on a new R2 million home loan will fall by approximately R350. However, the longer-term direction of rates will hinge on the Reserve Bank’s success in anchoring inflation closer to 3%, and how global economic pressures unfold.
As South Africa navigates a precarious global landscape and adjusts its monetary strategy, the Reserve Bank’s actions reflect both caution and reform. Whether this will be enough to stimulate growth and maintain price stability remains to be seen—but for now, borrowers can breathe a little easier.
