A key survey commissioned by the South Africa Reserve Bank (SARB) to track inflation expectations in the county has revised its 2025 forecast downward, bringing it below the central bank’s target level ahead of the upcoming monetary policy committee (MPC) meeting.
In its Q1 2025 report, the Bureau for Economic Research (BER) found that analysts, business leaders, and trade union officials now expect inflation to average 4.3% in 2025, down from the 4.5% forecast in the previous survey.
The SARB aims to keep inflation close to the midpoint of its 3%-6% target range (4.5%), making the downward revision a notable shift in expectations.
The survey results come despite a steady rise in reported annual inflation, which increased from 2.8% in October 2024 to 3.2% in January 2025.
Analysts expect February’s inflation data, due on Wednesday, to remain around the same level.
Despite the recent uptick in consumer prices, the central bank has been easing interest rates since September 2024, lowering its benchmark rate to 7.50% in January after a 25-basis-point cut.
As the MPC meeting approaches, economists remain divided on the outlook—some foresee an end to the rate-cutting cycle, while others anticipate further easing on Thursday.
Inflation expectations remain mixed beyond 2025
Looking ahead, the BER survey showed inflation expectations for 2026 remain unchanged at 4.6%, while a new forecast for 2027 predicts a slight increase to 4.7%.
Among the three groups surveyed, analysts were the most optimistic, expecting inflation to reach just 3.9% in 2025 before stabilising at 4.3% over the next two years. Business executives were more cautious, predicting inflation at 4.6% this year, rising to 4.8% in 2026 and 2027.
Trade union officials were the most pessimistic, forecasting inflation to accelerate from 4.5% in 2025 to 5.0% by 2027.
On a longer horizon, inflation expectations over the next five years averaged 4.7%, slightly above the central bank’s target midpoint.
Analysts foresee a lower rate of 4.2%, while business leaders and trade unions expect inflation to be closer to 5.0%.
Interest rate cuts expectations scaled back
In line with the lower inflation forecast for early 2025, survey respondents also revised down their expectations for salary and wage increases.
They now anticipate an average wage increase of 4.5% this year, down from a previous forecast of 4.9%.
However, expectations for interest rate cuts have shifted. The survey now suggests the prime lending rate will drop to 10.75% by the end of 2025, implying just one 25-basis-point cut from the current 11%.
This is a more conservative outlook than in the previous survey, which predicted two cuts to bring the rate down to 10.50%. Business executives and analysts both revised their interest rate expectations higher, with business leaders now expecting no rate cuts in 2025 but a 50-basis-point reduction in 2026.
Rand outlook weakens as economic growth expectations slip
The BER survey also highlighted growing concerns over the rand’s performance. Respondents now expect the currency to weaken further, with an average forecast of R18.48 to the US dollar by the end of 2025—32 cents weaker than their previous prediction. None of the surveyed groups expect the rand to strengthen below R17 to the dollar.
Economic growth projections were also revised downward, with respondents expecting GDP to expand by just 1.2% in 2025, down from the 1.5% forecast in the previous quarter. This outlook lags behind the government’s projection of 1.9% growth, announced in last week’s budget speech.
The budget itself remains a point of contention, with South Africa’s coalition government struggling to reach consensus.
Several political parties have rejected the proposed VAT increase, creating further uncertainty about the country’s economic direction.
