By: Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano
Another cut at the January MPC meeting?
The Monetary Policy Committee (MPC) has already lowered the policy rate from 8.25% at the start of 2024 to 6.75% by the end of 2025. However, even with this, policy remains restrictive by our estimate of the rate that is neutral on the economy, and considering expected inflation. The question is, how restrictive does the MPC plan on keeping policy to influence pricing behaviour sufficiently and ensure that medium-term inflation is anchored at 3%? We may not have an answer to this question yet, but there are multiple factors that could shift the MPC in different directions. Therefore, to the question of whether the MPC will cut interest rates again at their upcoming meeting on 29 January, the answer is yes, no, and maybe.
Yes
The MPC delivered 25bps cuts in July, when they unilaterally shifted to the lower target, and again in November 2025, despite fears that a lower target would cause the committee to be more conservative as they worked to guide expectations lower. Instead, not only did the MPC appear willing to look through temporary rises in inflation, but they likely also believed that expectations would be more dynamic, especially in an environment of slow inflation. Based on the 4Q25 Bureau of Economic Research (BER) survey covering analysts, trade unions, and business, both two-year-ahead and five-year-ahead inflation expectations have shifted from 4.2% to 3.7% - with only business still around 4%. With soft core goods inflation and fuel deflation, headline inflation should ease further this year and would support a continued compression in expectations. This could be enough for another cut.
No
While the speed of adjustment in expectations in 4Q25 is encouraging, we did see a similar move in 1Q18 after the MPC announced their preference for 4.5%, but adjustments slowed thereafter. Therefore, this could be a knee-jerk reaction, and the MPC could decide to spend time assessing the response of government budgeting processes alongside continued moral suasion towards price setters before easing policy again. Furthermore, if the South African Reserve Bank (SARB) thinks that the rand's strength is not durable, sees a faster closure of the output gap and accelerated services inflation, and focuses on general price rigidities in the economy, this could be enough to maintain current restrictiveness.
Maybe
This cutting cycle has been relatively staggered; we are living in volatile times, and we have heard that the only thing that has become certain is uncertainty. Therefore, there are certainly odds that the MPC cuts again next week; we have predicted that rates will be unchanged; so, the final answer is maybe.
Week in review
Mining production (not seasonally adjusted) contracted by 2.7% y/y in November, down from an upwardly revised 6.1% (previously 5.8%) in October. Seasonally adjusted mining output fell sharply by -5.9% m/m, down from 2.7% (previously 2.1%) the month before. The largest negative contributors were coal, iron ore, PGMs and gold, while Manganese ore was the largest positive contributor coming in at 17.0%. As a result, output for the three months to November increased by 1.6%, slowing from 2.5% growth in the preceding three months to September 2025. This suggests that the mining sector's contribution to 4Q25 GDP growth may have weakened.
Headline inflation was recorded at 3.6% y/y in December, up from 3.5% in November. Monthly pressure was 0.2%, mainly driven by rising services costs and higher fuel prices. Core inflation was 0.1% m/m and 3.3% y/y, slightly up from 3.2% previously. Average fuel prices rose by 1.6% m/m and were 0.6% higher than at the same time last year. Food and non-alcoholic beverages (NAB) inflation was unchanged at 4.4% y/y but posted monthly pressure of 0.2%. On average over 2025, headline inflation was 3.2%, down from 4.4% in 2024. We see inflation slowing further this year, starting with 3.3% in January.
Retail sales accelerated in November, coming in at 3.5% y/y, up from 3.0% in October. On a month-on-month basis, volume sales rose by 0.6%, slightly slower than the 1.0% recorded previously. This outcome is encouraging for 4Q25 GDP growth. November activity was likely driven by Black Friday promotions, which many retailers extended throughout the month.
Week ahead
On Tuesday, the Leading Business Cycle Indicator for November will be published. In October, it rose by 0.4% m/m (and 2.2% y/y) to 116.7 points. The rise was supported by gains in six of the ten available components, with the largest contribution coming from an increase in South Africa's US-dollar denominated export commodity price index and an improvement in the RMB/BER Business Confidence Index. The biggest mitigators were a weakening in the real M1 money supply trend growth rate and a narrowing of the interest rate spread.
On Thursday, producer inflation data for December will be released. In November, producer inflation held at 2.9% y/y, unchanged from October. On a monthly basis, prices were flat, after a 0.1% decline in the previous month. The largest positive contributors were food products, beverages and tobacco products as well as furniture and other manufacturing.
On Friday, data on Private Sector Credit Extension (PSCE) for December will be released. PSCE increased to 7.8% y/y in November, from 7.3% in October. Corporate credit led the surge, rising 11.4% from 10.7% in the previous month, mainly driven by general loans and advances as well as corporate mortgage advances. Household credit growth lifted to 3.5%, up from 3.1% in October, largely driven by mortgage advances and vehicle asset finance.
Also on Friday, the trade balance for December will be published. The trade balance recorded a surplus in November of R37.7 billion versus a R15 billion surplus in October. The November outcome reflected a softer 1.9% m/m fall in exports, while imports fell sharply, dropping 14.9% m/m to a five-month low of R150 billion.
