Rand, rates and rising expectations: What’s next for South Africa’s economy

20 January 2026 | Economic factors

By: Nicola Mawson – IOL Business

South Africa’s inflation outlook is showing signs of easing, creating space for potential interest rate cuts in 2026.

December’s consumer price index (CPI) is projected to have remained flat month-on-month, with year-on-year inflation easing slightly to 3.4%, down from 3.5%, according to Investec economist Lara Hodes.

Petrol prices rose only modestly by 29c per litre during the month, Hodes said. She quoted Agbiz as saying that food inflation is expected to “continue on its current moderating path, driven by potentially ample agricultural supplies".

Reserve Bank Governor Lesetja Kganyago said in November that inflation’s acceleration in October was higher than the 3% average recorded in the first half of the year.

“The uptick is mainly due to non-core items: meat, vegetables, and fuel. We continue to see this pressure as temporary, with inflation heading lower again from the beginning of next year,” he said.

Kganyago noted that there were downward pressures for inflation alongside surprises, together with a lower oil price assumption, leading the bank to determine that the country was on track to deliver 3% inflation over the medium term.

Nedbank also sees underlying inflation as muted and stable. The bank expects headline inflation to close out at 3.2% for last year and rise slightly to about 3.5% in 2026.

Food prices may remain elevated early in the year due to last year’s low base and the lingering effects of foot-and-mouth disease on meat.

“Thereafter, food inflation is forecast to ease as the base effects fade and healthy domestic harvests, lower global food prices and a steady rand exert persistent downward pressure,” Nedbank said.

Economists have said the South African Reserve Bank is well-positioned to cut interest rates.

Johann Els, chief economist at PSG Financial Services, said, “I think the Reserve Bank is in a position where they can continue to cut rates, and I expect two more rate cuts in the first half of 2026”.

Else added that inflation is likely to settle around 3.2% for 2025, rising slightly to 3.6% this year.

Annabel Bishop, chief economist at Investec, said markets are only fully pricing in one 0.25 percentage point repo rate cut in March, with a second cut of the same size in September only partially reflected.

South Africa has already cut rates by 1.5 percentage points since September 2024, leaving the current prime lending rate at 10.5%.