SARB may cut rate but remains cautious, says Sanlam Investments

Sanlam Investments believes the South African Reserve Bank is facing one of its most finely balanced decisions in recent months as the Monetary Policy Committee meets to decide on the repo rate. Market expectations have shifted towards the possibility of a small cut, yet the Reserve Bank’s cautious approach suggests that a hold remains just as likely.

The repo rate is currently at 7 percent and prime stands at 10.5 percent. According to Sanlam’s chief economist Arthur Kamp, several indicators are now moving in favour of easing. Inflation has consistently surprised on the downside throughout the year and has remained within a comfortable range.

The rand has shown renewed stability despite global volatility, while signals from the United States point toward a softer stance from the Federal Reserve in the near term. Domestically, the recent Medium Term Budget Policy Statement has received favourable market reactions, with analysts noting early signs of fiscal consolidation.

Even with these encouraging developments, Sanlam says the Reserve Bank will remain deliberate and measured. The Bank has shifted its focus towards steering inflation closer to its preferred 3 percent midpoint, and officials may want to see stronger evidence that recent price movements are sustainable and not temporary. Anchoring inflation expectations remains a central objective, and the MPC may choose to wait until early next year before adjusting rates.

Sanlam’s outlook captures the tension in the current economic moment. On one hand, the combination of softer inflation, improved currency performance and easing global conditions creates a credible case for monetary relief. On the other, the SARB’s reputation for caution and its long-term commitment to price stability suggest that it may prefer to delay any move until it is certain that inflation is securely on a downward trajectory.