FX.co ★ South Africa Trims Key Policy Rate as Expected

On May 29, 2025, the South African Reserve Bank reduced its key interest rate by 25 basis points to 7.25%, a move largely expected following their pause in March. This decision was made to bolster a struggling economy, as inflation remained below 3% for the second consecutive month. Among the policymakers, the decision was not unanimous, with five members supporting the rate cut and one proposing a more substantial reduction of 50 basis points. The revised inflation forecast factors in a lower initial point, advantageous oil prices, favorable exchange rate assumptions, and the scrapping of proposed VAT increases. Meanwhile, growth projections have been lowered from 1.7% to 1.2%, acknowledging downside risks, even as the prospects for structural reforms stay positive amidst certain challenges. The Committee expressed a preference for guiding inflation toward 3%, aiming to stabilize expectations at the lower end of the target range, with intentions to discuss a 3% inflation goal in upcoming meetings.