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Reserve Bank’s tightrope act amid tariff uncertainty — the Monetary Policy Review unpacked

Reserve Bank’s tightrope act amid tariff uncertainty — the Monetary Policy Review unpacked
Yeshiel Panchia
By Yeshiel Panchia
16 Apr 2025
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The report reflects a Reserve Bank that is analytically sharp, globally attuned and deeply risk-averse. But caution may need to give way to bolder action.

The South African Reserve Bank (SARB) has trimmed interest rates by 75 basis points since late 2024, positioning its policy stance as “near-neutral” in the April 2025 Monetary Policy Review (MPR) presented late on Tuesday.

On paper, inflation is falling and real household incomes are rising; but this cautiously optimistic tone conceals deeper concerns: the real economy is flatlining, global tariffs are looming and the rand remains exposed. The Bank is holding its nerve – for now.

The question is whether waiting any longer will cost the economy more than credibility, and here’s why.

Monetary policy operates on a forward-looking basis, with the SARB setting interest rates today to influence inflation 12 to 24 months from now. However, when global shocks like trade wars or fuel price surges intrude, the lag between projection and reality becomes a policy trap, making it incredibly difficult to make fiscal decisions in an increasingly uncertain world.

That’s where the SARB now finds itself – forecasting finance through fog.

As Izak Odendaal, chief investment strategist at Old Mutual Wealth, warned Daily Maverick: “Consistency is the bedrock of credibility, and SARB is taking a cautious approach and biding its time to see what happens next: The Reserve Bank stood firm. And it kind of was an anchor of policy credibility for South Africa.”

Global crosscurrents: the limits of disinflation

The global backdrop is more stagflation than soft landing – while headline inflation has eased from the peaks of 2022, core inflation in advanced economies remains stubbornly high.

Practically, this means that consumers and businesses still face rising service costs, sticky wage pressures and financial uncertainty, despite headline inflation easing. It complicates rate decisions because cutting too soon could reignite inflation, while waiting too long could stall fragile recoveries.

The Reserve Bank knows that if they move too aggressively, the rand could get punished.

According to the MPR, global disinflation “has stalled” while downside risks to growth mount amid renewed trade tensions. The SARB’s scenario modelling places significant weight on a potential escalation of tariffs, particularly from the US, with GDP losses of up to -0.69% and inflation rising by nearly one percentage point in a high-shock scenario.

Odendaal also notes that while the domestic case for rate cuts is clear, the SARB’s hands are tied. “From an inflation point of view, we should expect the repo rate to be cut,” he says. “But South Africa doesn’t operate in a vacuum. They’re looking at the rand, at capital flows, and at how much geopolitical noise the global economy can absorb.”

Our Achilles heel – growth without investment


The real economy remains underpowered after near-zero growth in 2024 (0.6%), and the SARB expects a recovery to 1.7% in 2025. Yet gross fixed capital formation contracted 3.7% last year, and sectoral output remains below 2019 levels in key industries like mining, manufacturing and logistics. Eskom’s energy availability factor remains stuck below 60%, and Transnet’s cargo volumes have not recovered from the pandemic-era collapse.

Dawie Roodt, chief economist at Efficient Group, echoed this concern to Daily Maverick: “We’ve got very weak demand in the economy. Inflation expectations have come down, but investment hasn’t picked up. The Reserve Bank knows that if they move too aggressively, the rand could get punished.”

Instead, consumer spending, buoyed by lower inflation and early pension withdrawals under the two-pot system, continues to carry the recovery. This reliance on households and spending is deeply uneven, and affects South African society in a very stratified manner, as Odendaal points out: “If you’re poor, you’re more exposed to inflation than anyone else. Every rand that comes in gets spent. There are no buffers.”

Inflation both subdued and exposed


Headline inflation surprised to the downside in Q1 2025, averaging 3.2%, well below the midpoint of the 3% to 6% target band. The SARB forecasts 3.6% inflation for the year, and yet risks loom. VAT increases in May 2025 and April 2026 – should they occur, which at this point is about as great an indicator of uncertainty as anything else – will add an estimated 0.5 percentage point each, with a 78% pass-through to headline inflation. Moreover, persistent costs from administered prices, public sector wages and currency depreciation threaten to reverse disinflationary gains.
On the flipside, the SARB’s caution helps keep the rand stable.

The Bank’s caution is thus rooted in structure, not sentiment. “The real neutral rate is high,” explains Odendaal. “It’s based on South Africa’s need to attract capital. That means we need interest rates that are high enough to keep the rand stable. That’s not a function of local bank lending; it’s about balance of payments.”

Roodt concurs that inflation is likely to stay under control, barring major shocks. “We’ve got very weak demand in the economy,” he notes. “Inflation expectations are coming down, and oil prices are low. That gives the SARB room to cut – eventually.”

And so comes the balancing act


The SARB’s cautious tone – reinforced by scenario modelling, forward guidance and strong institutional messaging – reflects its desire to preserve policy credibility. In an environment where populism is surging globally and where institutions are increasingly politicised, the SARB stands out for its consistency. “You could imagine what would happen if the (US) Reserve Bank governor was a populist,” warns Odendaal. “We’ve already seen the institutional hollowing-out in other parts of government. SARB has held the line.”

Yet credibility comes at a cost. With expected inflation at 4.3% and the repo rate at 7.5%, the real policy rate sits at about 3.2%, slightly above SARB’s estimated neutral of 3.0%. That means policy remains mildly restrictive, even as the global economy cools. Barring a severe rand sell-off, the Bank has room to cut in the second half of 2025.

What this means for you


For ordinary South Africans, this monetary balancing act touches everything from household budgets to future social support. A lower repo rate could reduce loan repayments, but only if inflation stays in check. On the flipside, the SARB’s caution helps keep the rand stable, which affects petrol prices, food imports and the government’s ability to fund social grants. In essence: restraint today is a bet on financial stability tomorrow.



The April 2025 MPR reflects a Reserve Bank that is analytically sharp, globally attuned and deeply risk-averse. But as the economic toll of global tariffs mounts and domestic growth remains dependent on household resilience, the SARB’s caution may need to give way to bolder action. For now, they’re watching the world and waiting for the uncertainty to subside.

And as both Roodt and Odendaal suggest, waiting too long could prove just as risky as moving too soon. In a world defined by volatile trade flows and weakening global demand, there may be no perfect moment to act, only less-costly ones. DM

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