South African inflation expectations for the next two years edged closer to the 4.5% midpoint of the central bank’s target range, reinforcing the case for interest rate cuts to start this month.

Average inflation expectations two years ahead — which the bank’s monetary policy committee uses to inform its decision-making — fell to 4.8% in the third quarter from 4.9% previously, according to a survey released on Thursday by the Stellenbosch-based Bureau for Economic Research.

Businesspeople and labour officials lowered their inflation forecasts for the entire three-year horizon that the BER survey covers. Analysts kept their expectations unchanged for 2026 but lowered them for this year and next.

Central bank Governor Lesetja Kganyago has repeatedly said the monetary policy committee will only adjust its policy rate, which has been held at 8.25% since May 2023, once inflation is sustainably at 4.5%, where the MPC prefers to anchor expectations.

Cooler expectations add to other positive news that analysts believe will persuade officials to lower interest rates by 25 basis points after their meeting on September 19, cutting South African borrowing costs for the first time since the height of the coronavirus pandemic in 2020.

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