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MPC Decision March 2025: Interest rates on hold amid mounting global risks.
- As expected, the MPC kept the repo rate unchanged at 7.50% due to the upside risks posed by the unfolding global trade war to the domestic inflation outlook over the medium term. The outcome was the result of another split vote, with two members voting for a 25-basis-points (bps) cut.
- Inflation forecasts: The SARB concluded that inflation remains well contained over the short term. They expected lower global oil prices to offset the impact of the gradual increase in the VAT rate over the next two years. The SARB sees global oil prices easing to $75 per barrel by 2027. They expect the VAT rate hikes to come into effect in May 2025 and April 2026, adding around 0.2 percentage points to headline inflation over 12 months. Finally, the scheduled increases in electricity tariffs turned out to be more benign than envisioned in January. Consequently, they have lowered their inflation forecasts to 3.6% in 2025 (vs 3.9%) and 4.5% in 2026 (vs 4.6%). While the SARB reduced its core inflation forecast for 2025 to 3.7% from 3.8%, it slightly upped the forecasts for 2026 and 2027.
- The Committee again concluded that the inflation outlook faced upside risks over the medium term. The MPC remained concerned that the uncertain global environment, particularly the unfolding trade war, could still unsettle the rand and dislodge inflation from its subdued trajectory.