S. Africa Inflation Ticks Up, Benign Outlook Backs Rate Cut
(Bloomberg) — South African inflation edged up slightly in December, but that’s unlikely to deter the central bank from cutting interest rates next week, as pricing pressures are expected to remain benign.
Throughout the year, “we expect” inflation for each one of the months to stay in the 3% range, South African Reserve Bank Governor Lesetja Kganyago told Bloomberg Television at the World Economic Forum in Davos on Wednesday prior to the data release. “We think that inflation this year will average anything around 3.5%” and by 2027 it will converge toward “our new 3% target. That then says that we still have room” to ease policy, he said.
Consumer prices rose an annual 3.6% from 3.5% in November, said Pretoria-based Statistics South Africa, averaging 3.2% for 2025. That was below the central bank’s 3.3% forecast and the lowest rate in 21 years. In July, the bank indicated its preference to target inflation at 3% — a goal that was formally adopted by National Treasury in November.
The lower-than-expected average, along with forecasts that price growth will stay subdued amid softer oil prices, a stronger rand and record-low inflation expectations, may prompt the central bank’s monetary policy committee to cut rates on Jan. 29.
Inflation has likely peaked and is set to slow in the first half of 2026. That, combined with a restrictive policy stance, leaves room for further rate cuts, said Bloomberg’s economist for Africa Yvonne Mhango. “We expect a 25-basis-point cut in January” to 6.5.%, she said.
Forward-rate agreements — used to speculate on borrowing costs — are pricing in at least two rate cuts this year, with a 36% chance that the first will come next week.
The yield on the 2030 government bond fell after the data, dropping six basis points to 7.38% and the rand pared a gain of as much as 0.65% to trade 0.5% stronger at 16.34 per dollar as of 2:23 p.m.
The biggest contributors to inflation were housing and utilities, food and non-alcoholic beverages and insurance and financial services, at 4.9%, 4.4% and 7%, respectively.
Still, some economists including Investec’s Annabel Bishop, Stanlib Asset Management Ltd.’s Kevin Lings and Goldman Sachs Group Inc.’s Andrew Matheny and Ludovica Ambrosino believe the central bank may err on the side of caution and hold rates next week amid heightened global uncertainty.
US President Donald Trump, who is scheduled to speak in Davos later on Wednesday, has shown no signs of backing down on his push to claim Greenland, which has unnerved some investors. His threats toward NATO allies and attacks on the Federal Reserve’s independence have also rattled markets and added renewed impetus to a record-breaking rally in gold.
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–With assistance from Simon Lee, Enzokuhle Sabela, Robert Brand and Mike Cohen.
(Updates with economist’s comments in paragraph five)
©2026 Bloomberg L.P.
