Headline inflation remained below the lower limit of the inflation target band

With lower oil prices, a stable rand, weak economic growth, and the scrapping of the value-added tax (VAT) hike, the South African Reserve Bank (SARB) is likely to revise its 2025 inflation forecast down from 3.6%. The Reuters
consensus has shifted lower to 3.7% for 2025 to reflect these factors. We continue to expect at least one more interest rate cut to 7.25% in 2025 but the SARB is likely to proceed with caution thereafter given global risks.

Easing trade tensions between the United States (US) and China reduce global recession risks. Consequently, imported deflation from China may also lessen. Fixed income markets (as of 21 May) are pricing in just one cut by
year-end, down from an expected two cuts in April which likely reflects shifting US policy expectations. A potential shift lower in SA’s inflation target further limits the scope for interest rate cuts.

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