The SARB's Monetary Policy Committee decided to keep the repurchase rate at its current level of 6.75% per year, meaning that the prime rate holds steady at 10.25%.
Lesetja Kganyago, Governor of the South African Reserve Bank explained that last year was marked by extreme global uncertainty, and 2026 has begun with a new round of shocks. Geopolitical tensions remain elevated, reflecting what appears to be a rupture in the global political order. There are also new threats to central bank independence.
Markets are jittery, and precious metals like gold have received safe-haven flows. There are also ongoing risks of an Artificial Intelligence (AI) bubble. Furthermore, global imbalances have become very large. For instance, China’s trade surplus was over a trillion dollars last year, a new record. Meanwhile, government debt is still growing fast in key economies, with the US fiscal deficit, for example, approaching two trillion dollars. These trends are not sustainable.
Despite these fragilities, asset prices have been resilient and global growth is holding up, supported by investments in AI, as well as fiscal stimulus in major economies. Inflation generally slowed last year, and many central banks have had space to adopt more neutral policy settings. Financing conditions for emerging markets remain benign.
Turning to South Africa, growth looks steadier.
The economy has expanded for four consecutive quarters, and the available data suggest it grew further in the most recent quarter. This would mark the longest unbroken growth phase since 2018.
The main growth driver has been household consumption, up by more than 3% last year, compared to an estimated 1.3% for the overall economy. Unfortunately, investment has been weak, contracting during the first half of 2025. However, the third-quarter data showed a rebound. We hope this investment recovery will be sustained, allowing the economy to achieve structurally higher growth.
Our forecasts continue to show growth moving somewhat higher, approaching 2% over the medium term. We see some upside risks to these projections.
Moving to prices, inflation last year was 3.2%, close to our 3% objective. Inflation was a bit higher towards the end of the year, mainly because of temporary factors. The December print came in at 3.6%. However, we expect this was the peak, and that inflation will slow from here.
Indeed, our near-term inflation forecast has fallen, with the rand stronger and a lower oil price assumption. We are, however, keeping an eye on food inflation, especially meat prices, which are being affected by a serious outbreak of foot and mouth disease. We are also concerned about electricity prices, given that NERSA’s price correction may rise from R54 billion to R76 billion.
More positively, inflation expectations have fallen, with the latest survey showing longer-term expectations at record lows. We look forward to expectations declining further, as South Africans experience ongoing lower inflation and learn more about the new target.
In turn, lower expectations will be important for getting inflation to settle at 3%. Currently, we are benefitting from low goods price inflation, supported by factors like the stronger rand. Goods inflation is at 3%, and core goods is at 1.2%. By contrast, services inflation is still over 4%. It is desirable to have services inflation moving closer to 3%, as low inflation becomes the new normal for South Africa.
We assess the risks to the inflation outlook as balanced.
Against this backdrop, the MPC decided to keep the policy rate unchanged, at 6.75%. Two members favoured a cut of 25 basis points, while four preferred a hold.
