As 2025 draws to a close, the international economic environment remains fraught with uncertainty. Major economies are moving at different speeds, and the world’s monetary guardians are contending with crosswinds that range from stubborn inflation in advanced markets to deflationary tensions in China. According to the South African Reserve Bank (SARB), global growth is performing better than many forecasted earlier in the year, with its November projections for South Africa’s major trading partners revised upward to 2.7%, from 2.5% in the September assessment.
Yet beneath this surface calm lies a deeper complexity. Inflation in the euro area appears relatively contained, but the picture shifts when observing the United Kingdom, Japan, and the United States, where inflation continues to sit above the 2% targets central banks consider healthy. Meanwhile, China’s economy faces the opposite problem, sliding closer toward deflation. Emerging markets, however, have outperformed expectations, benefiting from stronger capital inflows, favourable terms of trade, and a weaker US dollar that has eased external pressures.
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This divergence in global conditions has introduced heightened volatility in financial markets, magnified by the ongoing boom in artificial intelligence investments. The SARB notes that valuations in the technology sector are growing increasingly aggressive, hinting at the formation of a bubble. Should this bubble burst, emerging markets like South Africa could face adverse spillover effects.
South Africa enters this global environment with a sense of cautious resilience. Economic growth has surprised positively over the second and third quarters of the year, prompting the SARB to revise its full-year 2025 growth projection slightly upward to 1.3%. The medium-term trajectory remains modest but hopeful, with growth expected to reach near 2% over the forecast horizon.
Employment figures reflect incremental progress. The Quarterly Labour Force Survey records an increase in total employment to 17.055 million by September 2025, compared with 16.946 million a year earlier and 16.807 million in the previous quarter. The unemployment rate eased to 31.9%, a marginal but symbolically important improvement from 32.1% in 2024 and 33.2% earlier in 2025.
Household spending has held up better than anticipated, supported by wealth effects stemming from strong equity market performance — the JSE All-Share Index has expanded by roughly 30% year-to-date, alongside lower inflation, lower interest rates, and withdrawals from the new Two-Pot pension system. This consumption strength contrasts wJSEith investment, which contracted further during the first half of the year. The SARB expects investment to rebound in the latter part of 2025, a shift it frames as critical for restoring South Africa’s economy to its historical growth trend.
Inflation’s Gentle Rise and the Promise of a Softer Path
Headline inflation in South Africa quickened to 3.6% in October 2025, according to Statistics South Africa and corroborated by Reuters reporting. This represents a slight increase compared to the average of 2.95% recorded between January and June. The surge, however, is driven primarily by non-core components such as meat, vegetables, and fuel prices. The SARB maintains that this uptick is temporary and expects inflation to drift lower from early 2026.
The November MPC statement confirms that the inflation outlook has been revised downward due to lower oil price assumptions, a stronger rand, and inflation outcomes coming in below previous forecasts. The annual inflation projection for 2025 has been adjusted from 3.4% to 3.3%, while 2026 has been reduced from 3.6% to 3.5%. The bank remains confident that inflation will stabilise around 3%, the new point target, over the medium term.
Market sentiment appears aligned with this trajectory. Analysts surveyed by Reuters reduced their 2026 inflation expectation to 3.6%, from 3.8%, reflecting growing confidence in South Africa’s path toward price stability. Breakeven rates have similarly declined across the yield curve.
The November Rate Cut
After maintaining a tight monetary stance throughout the year, the SARB’s Monetary Policy Committee announced a 25-basis-point reduction, bringing the repo rate down to 6.75% effective 21 November 2025. The decision was unanimous, signalling that the committee sees sufficient evidence of easing inflationary pressure and improving macroeconomic stability.
The central bank emphasised that future decisions will continue to be guided by data and risk assessment, underscoring the need for caution in a world still riddled with uncertainties. The Quarterly Projection Model continues to indicate that additional gradual rate cuts may be possible as inflation settles within the new target band.
Perhaps the most significant structural development announced this season is South Africa’s new inflation-targeting framework. After twenty-five years of operating within a 3–6% target range, the SARB, in agreement with the Minister of Finance, has now adopted a more precise 3% point target, with a tolerance band of plus or minus 1 percentage point.
This shift aligns South Africa more closely with global best practice in inflation targeting, modernising the country’s monetary policy framework. While the tolerance band allows for flexibility in the face of shocks, the central bank was careful to stress that its aim remains firmly centred on achieving 3% inflation. Deviations will prompt clear explanations and corrective action.
The SARB also noted the lag between monetary policy decisions and their impact on prices, typically ranging between 12 and 24 months, reinforcing why the 3% target will be reached gradually over the forecast period.
Managing Risk Scenarios
To anchor expectations and ensure resilience, the MPC tested two risk scenarios in its November assessment. The first considers a potential rebound of the US dollar, which could weaken the rand to around R19 per dollar, reversing the currency’s current appreciation. Although the rand has strengthened by roughly 9% against the US dollar this year, it has depreciated by 2% against the euro, reflecting mixed global dynamics.
The second scenario examines the implications of adjustments in administered prices, particularly the correction of a R54 billion electricity tariff miscalculation disclosed recently. This scenario projects higher inflation in administered categories, especially electricity, should the correction materialise more abruptly.
Both scenarios illustrate that monetary policy may need to remain tighter for longer if external shocks or domestic price adjustments materialise.
A Country Moving Forward Despite the Weight of Constraints
South Africa’s macroeconomic narrative in 2025 is marked by a blend of progress and persisting fragility. Structural reforms, including those underpinning the country’s exit from the Financial Action Task Force grey list and a recent credit rating upgrade from Standard & Poor’s, signal meaningful strides toward improved governance and economic resilience.
Yet challenges remain substantial. The global environment remains unpredictable, investment has not fully regained momentum, and household resilience continues to rely heavily on asset-driven and policy-induced support.
The November MPC decision, however, reflects a central bank confident in its trajectory. The move to reduce the policy rate, refine the inflation-targeting framework, and continue navigating global headwinds signals a commitment to anchoring stability even in a world that remains volatile.
