By: Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano
How will the MPC close out 2025?
The South African Reserve Bank's (SARB's) Monetary Policy Committee (MPC) is set to announce its final interest rate decision of the year on Thursday, 20 November, concluding a period marked by elevated uncertainty and market volatility. While 2025 was expected to be turbulent, the path to a 7% repo rate was initially projected to be smooth - anchored by three consecutive 25bp cuts early in the year. However, external shocks from the new United States (US) administration's tariff policies and South Africa's fraught budgeting process disrupted this trajectory, prompting a pause in March. Despite these headwinds, inflation surprised to the downside and the rand held steady, allowing the MPC to resume rate cuts in May and July.
A policy rate of 7% is consistent with a neutral real rate of 2.5% and longer-term inflation of 4.5%, so when the MPC moved to shift to a lower target of 3% in July, which was endorsed by the Minister of Finance, Enoch Godongwana, in his Medium-Term Budget Policy Statement (MTBPS) this week, new space was created to ease policy further. Some market participants think the next cut could be as early as the upcoming meeting, while the majority think 1Q26 but we currently think 2H26. Below we discuss how we think the MPC will close out 2025 and what may dictate the direction of travel in 2026.
November outlook and 2026 trajectory
We expect the MPC to hold rates steady in November, emphasising the importance of anchoring medium-term price-setter inflation expectations. With a limited probability of compelling data in the next six months, a premature cut could undermine credibility and complicate the future policy stance. However, this view is not without risk as there is no clear consensus on how restrictive policy must be to guide expectations effectively. If rates are too tight, they may suppress inflation but at a destructive cost to economic growth and political stability.
Catalysts for earlier easing
Several factors could prompt the MPC to cut rates sooner than anticipated:
Final thoughts
As the MPC wraps up a volatile year, its cautious stance reflects a commitment to stabilising inflation expectations before resuming rate cuts. While the base case is for rates to remain unchanged through early 2026, persistent disinflation, reform momentum, and strong fiscal backing could shift the timeline forward. These developments would not only support earlier easing but also improve South Africa's macroeconomic resilience heading into the new year.
Week in review
The Quarterly Labour Force Survey (QLFS), a household-based employment survey (not seasonally adjusted), reflected an increase in total employment of 248 000 q/q in 3Q25, following an increase of 19 236 in the previous quarter. Compared to the same quarter last year, employment improved by 109 000 to 17 055 000. The level of unemployment declined by 360 000 q/q (3 000 y/y), bringing the total number of unemployed individuals to 8 007 000. As a result, the official unemployment rate fell by 1.3ppts to 31.9%. The combined rate of unemployment and the potential labour force declined to 42.4% in the 2Q25, from 43.0% in the previous quarter. Despite this modest improvement, the persistently high unemployment rate highlights the ongoing vulnerability and weakness of the labour market. This challenge is further exacerbated by increased uncertainty about the potential employment effects of US tariffs on key sectors such as agriculture, automotive, machinery and equipment manufacturing, and mining (excluding critical mineral producers). Over the medium term, sustained structural reforms and accelerated efforts to diversify export markets will be crucial to support job creation and strengthen labour market resilience.
Manufacturing output (not seasonally adjusted) expanded to 0.3% y/y in September, after a decline of 1.5% in August. The outcome exceeded the Bloomberg consensus forecast of a 0.3% decline. However, seasonally adjusted manufacturing production declined by 0.5% m/m in September, following 0.7% growth in August. The full 3Q25 manufacturing data suggests that the sector contributed positively to GDP growth, based on 0.1% quarterly growth.
Mining production (not seasonally adjusted) expanded to 1.2% y/y in September, from a 0.0% (previously -0.2%) in August. Seasonally adjusted mining output grew by 2.2% in September, after a 0.9% decline in August. The strongest positive contributions came from PGMs, gold, and coal, while manganese and iron ore weighed negatively on overall production. As a result, output for the three months to September is up 2.5%, signalling continued positive momentum in 3Q25 and supporting quarterly GDP growth.
Week ahead
On Wednesday, data on consumer inflation for October will be released. Consumer inflation increased slightly to 3.4% y/y in September, up from 3.3% in August. Monthly pressure was 0.2%, mainly driven by core inflation. Core inflation was 0.3% m/m and 3.2% y/y, up from 3.1% previously. We see headline inflation lifting to 3.7% y/y (0.2% m/m) in October and expect it to remain below 4% over the next year, bar any negative shocks.
Also on Wednesday, retail sales data for September will be released. Retail sales growth slowed sharply in August, posting 2.3% y/y, down from a 5.6% y/y in July. On a month- on-month basis, volume sales declined by 1.2% partially reversing the 2.3% gains of the previous month. However, sales volume over the last three months remains 1.2% higher compared to the previous three months. The strength in the retail sector, particularly in non-essential categories, reflects improving household purchasing power and balance sheets, as well as less restrictive monetary policy.
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