South Africa’s inflation expectations for the next two years have reached their lowest level since 2021, declining to 4.6% in the fourth quarter from 4.8% previously, according to the Stellenbosch-based Bureau for Economic Research. This level, slightly above the central bank’s preferred 4.5% midpoint, supports ongoing interest-rate reductions by the South African Reserve Bank’s monetary policy committee (MPC).

The annual inflation rate edged up to 2.9% in November from 2.8% in October. A significant contributing factor to the subdued inflation environment was food-price growth, which has moderated to its lowest level in 14 years. While inflation remains contained, several risks loom on the horizon, including higher domestic fuel prices, a weakening rand, and uncertainty surrounding US President-elect Donald Trump’s trade policies, adding to a murkier inflation outlook.

Since September, the MPC has reduced borrowing costs by 50 basis points, bringing the repo rate to 7.75%. Governor Lesetja Kganyago has signalled a cautious approach to further rate adjustments given the unpredictable global economic environment.

Policymakers are set to announce their next rate decision on 30 January. Market data, as reflected in forward rate agreements, indicates a strong expectation of a 25 basis-point rate cut, with a smaller chance of a larger reduction. These developments align with the Reserve Bank’s goal of stabilising inflation expectations while responding prudently to both domestic and international economic challenges.