South African Reserve Bank Governor Lesetja Kganyago has forecast that inflation could drop below 4% in the coming months, providing the central bank with more policy flexibility. Inflation, which slowed to 4.4% in August 2024, is expected to settle at 3.6% in the last quarter of this year and average 4% in 2025. The decline in inflation, largely driven by waning global supply shocks, has already prompted the bank to reduce interest rates by 25 basis points to 8% in September.

Core inflation, excluding food and energy costs, also slowed to 4.1% in August, signaling that disinflation is firmly underway. Kganyago emphasised that the improving inflation outlook could give the central bank room to maneuver as inflation stabilises within the bank’s 3% to 6% target range.

South Africa’s inflation outlook is further supported by rising business confidence, following the formation of a broad governing coalition in May 2024, which includes centrist political parties. The coalition has strengthened the rand, reducing import prices and enhancing overall economic sentiment. Kganyago noted that the strengthening of the rand has also allowed South Africa to overcome negative pressures previously embedded in financial markets.

As a result, the economy is expected to continue its recovery, with likely growth in the third quarter following a 0.4% expansion in the previous quarter. Kganyago’s comments reflect optimism about South Africa’s economic prospects, with the possibility of further interest rate adjustments depending on future inflation trends.