South Africa’s inflation expectations for the next two years have decreased to their lowest level since 2021, edging closer to the central bank’s target midpoint of 4.5%. A survey by the Bureau for Economic Research revealed a drop in average inflation expectations to 4.6% in the fourth quarter from 4.8% previously. This moderation strengthens the case for the South African Reserve Bank’s monetary policy committee (MPC) to continue easing interest rates cautiously.

In November, South Africa’s annual inflation rate rose slightly to 2.9%, up from 2.8% the previous month. The moderation of food-price growth, which reached a 14-year low, helped to keep overall price pressures subdued. However, other factors, including higher domestic fuel costs, a weaker rand, and uncertainties surrounding US President-elect Donald Trump’s trade policies, contribute to a challenging inflation outlook.

Governor Lesetja Kganyago emphasised a cautious approach to interest-rate adjustments amidst this unpredictable global economic environment. Since September, the MPC has cut borrowing costs by 50 basis points, bringing the repo rate to 7.75%. Policymakers are expected to announce their next interest-rate decision on 30 January.

Forward rate agreements, used to gauge market sentiment on borrowing costs, fully anticipate another 25 basis-point reduction, with a smaller possibility of a larger rate cut. These developments align with the central bank’s objective to manage inflation expectations and maintain economic stability, while adapting to shifting domestic and international pressures.