Coffee Table Economics (CTE) with Anchor, written by Casey Sprake, is published periodically and offers a thoughtful mix of research, analysis, and commentary. Covering everything from inflation and central bank dynamics to global market moves and socio-political events, CTE distils the forces shaping the economy into insights that are both accessible and easy to digest – making sense of the complex so you do not have to.
Executive summary
In this week’s edition, we highlight the following:
- A measured turn: SA’s 2025 MTBPS angles towards fiscal credibility. This year’s Medium Term Budget Policy Statement (MTBPS) projected a sense of cautious stability rather than fiscal firefighting. Lower bond issuance, clearer inflation alignment, more credible expenditure management, and progress on institutional reforms were all well received by markets. Nonetheless, risks to the fiscal outlook remain.
- A calculated cut: The SARB eases interest rates as inflation anchors at 3%. With a benign October CPI print and the South African Reserve Bank (SARB) delivering a unanimous rate cut and formally adopting a 3% inflation target, policy is finally moving from defence to support. But the easing path will depend on how durable this disinflation proves, and whether growth gains can keep pace.
- A credit boost today, a credibility test tomorrow: SA has received an unexpected boost on the global credit stage. In its latest review, S&P Global Ratings upgraded SA’s foreign-currency sovereign rating to BB from BB-, while maintaining a positive outlook. The uplift was widely anticipated, but the timing surprised many market participants who expected S&P to wait until after next year’s Budget. Looking ahead, sustained discipline and structural progress will determine whether this upgrade marks the start of an upward path- or simply a temporary reprieve.
A measured turn: SA’s 2025 MTBPS angles towards fiscal credibility
SA’s 2025 MTBPS, delivered on 12 November, arrived amid a more constructive backdrop than earlier in the year. Improved in-year fiscal outcomes, along with broader consultation within the Government of National Unity (GNU), contributed to an MTBPS that felt more coordinated, more deliberate, and noticeably more market-friendly. Unsurprisingly, financial markets reacted swiftly. The rand strengthened, bond yields eased, and sentiment around “SA Inc.” improved meaningfully.
Two developments stood out. First, the National Treasury announced a larger-than-expected reduction in weekly fixed-rate bond issuance (from R3.75bn to R3bn), signalling greater confidence in funding conditions and a smaller borrowing requirement. Second, Treasury formally endorsed a 3% inflation target with a 1% band. While the SARB has long operated informally around this level, formal adoption by Treasury strengthens institutional alignment, reinforces SARB independence, and enhances overall policy credibility. These announcements set the tone for an MTBPS that emphasised fiscal discipline and improved coordination. Treasury still expects debt to peak this year, albeit slightly higher than earlier estimates, before stabilising at 77.9% of GDP in FY25/FY26. Debt-service costs are projected to moderate as lower inflation, a firmer currency, and better market conditions filter through. The consolidated deficit is forecast to narrow from 4.7% of GDP in FY25/FY26 to 2.9% by FY27/FY28.
Revenue performance exceeded expectations, with an upward revision of R19.7bn for the current fiscal year. Stronger VAT, corporate income tax, and fuel levy collections played a key role—supported by resilient consumer spending, improved corporate profitability in select sectors, and enhanced SARS efficiency. Looking ahead, however, Treasury expects revenue growth to soften, reflecting weaker nominal GDP and a reduced inflation impulse. On expenditure, total spending over the medium term was revised R36bn lower than planned in the May Budget, primarily due to lower inflation and departmental underspending. Importantly, Treasury has used this space to redirect resources toward growth-supportive investment. Infrastructure remains a core priority, with capital payments set to grow by 7.3% over the medium term- the fastest across all major spending categories.
A central element of this shift is the new credit guarantee vehicle (CGV), designed to de-risk infrastructure projects and crowd in private capital, particularly for energy and climate-related investment. Operational from June 2026, the CGV will be a regulated, majority privately owned institution, with initial capital provided by the state. Institutional reform also featured prominently. The rollout of multi-year budgeting, the Targeted and Responsible Savings (TARS) initiative, performance-based frameworks, procurement reforms, and payroll audits aimed at identifying “ghost workers” all represent efforts to strengthen public financial management. If effectively implemented, these reforms could gradually rebuild state capability and improve fiscal efficiency—areas where weaknesses have historically undermined value for money. Nonetheless, risks to the fiscal outlook remain. A softer global environment, commodity price volatility, large upcoming debt redemptions, underperforming state-owned enterprises (SOEs), and the slow pace of structural reform (particularly in energy, logistics, and local government) continue to weigh on the outlook. Political dynamics within the GNU also introduce possible execution risk.
The bottom line
This year’s MTBPS projected a sense of cautious stability rather than fiscal firefighting. Lower bond issuance, more precise inflation alignment, more credible expenditure management, and progress on institutional reforms were all well received by markets. In the near term, these developments ease funding pressures, support a firmer rand, and help create space for potential monetary easing later in 2026. More broadly, consistent delivery on these reforms could gradually lower SA’s risk premium, unlock investment, and strengthen the country’s medium-term growth trajectory. For the first time in several years, the fiscal narrative is beginning to shift away from crisis management toward rebuilding foundations for a more sustainable recovery.
A calculated cut: The SARB eases interest rates as inflation anchors at 3%
SA’s October inflation print offered a reminder that disinflation can still surprise on the downside. Headline CPI rose slightly to 3.6% YoY (from 3.4% in September), undershooting market expectations and reinforcing the impression of a broadly contained price environment. The key driver of this softer outcome was food and non-alcoholic beverages inflation, which slowed to 3.9%—its lowest reading in more than three years. Vegetable prices were the standout. After months of easing, they fell a further 3.0% MoM, pushing annual vegetable inflation to -4.4%, from +1.2% in September. Meat inflation also edged lower, while cereal and bread prices remained subdued, helped by favourable global grain markets and a strong domestic maize harvest. Although base effects could nudge cereal inflation higher in the coming months, the broader trajectory in food remains driven by supply-side volatility rather than demand-led price pressure.
The upward pressure on headline inflation stemmed almost entirely from fuel prices. Fuel inflation swung from -2.2% to +3.3% YoY, but this reflects a statistical quirk more than renewed cost pressure, with pump prices barely moving (up just 0.1% in October). Fuel-related inflation is expected to moderate again in the next CPI release, given current declines at the pump. Beyond food and fuel, the rest of the inflation landscape points to subdued domestic demand and favourable import pricing. Durable goods inflation contracted 0.9% YoY, driven by lower prices for electronics, appliances, and household items. Vehicle prices were flat MoM, slowing annual vehicle inflation to 1.2%. Core inflation eased to 3.1%, its lowest since 2011, underscoring muted underlying pressures.
Against this backdrop, the SARB’s Monetary Policy Committee (MPC) delivered a widely expected 25-bps cut, reducing the repo rate to 6.75% (prime now 10.25%). The decision was unanimous—an uncommon signal of confidence in the durability of disinflation and the room for a more supportive policy stance. The SARB’s model still points to gradual easing, though decisions will remain data-dependent, taken meeting-by-meeting rather than pre-announced. Two risks shaped the MPC’s tone. First, a potential rebound in the US dollar could test recent rand strength. Second, the sharp electricity-tariff adjustment expected after a R54bn miscalculation could temporarily push inflation higher. Both scenarios imply a slower pace of rate cuts, but neither derails the SARB’s baseline outlook. Notably, the tariff scenario also reinforces how crucial price-setting discipline will be under SA’s newly established inflation target.
Last week’s formal adoption of a 3% inflation target with a c. 1 ppt band represents the most meaningful evolution in SA’s monetary framework in two decades. The band is not a comfort zone; 3% is the anchor. The wider range simply recognises that shocks and transmission lags make precision difficult in real time. The framework remains flexible, but deviations will now be judged against a clearer benchmark. The credibility of this regime hinges entirely on expectations holding at 3%, even through temporary volatility. The SARB also revised its growth outlook higher. GDP is now expected to expand by 1.3% in 2025, improving gradually toward 2% over the medium term. Employment gains are helping, while investment remains a weak link- contracting in the first half of the year but expected to recover modestly. A sustainable upswing hinges on this recovery materialising, and on structural reforms meaningfully improving infrastructure capacity.
Taken together, October’s inflation print and November’s rate decision point to a coherent narrative: price pressures remain contained; inflation expectations are settling toward a lower anchor; and monetary policy is carefully transitioning toward a less restrictive stance while safeguarding institutional credibility. Lower rates and softer food inflation should lift real disposable incomes and support consumption, without reigniting inflation. For firms, a more credible low-inflation regime reduces uncertainty and lowers the cost of capital over time- conditions that typically precede an investment recovery rather than instantly trigger one. For the sovereign, the benefits of lower inflation are even more apparent: a lower risk premium and reduced debt-service pressure over time.
The bottom line
We maintain our expectation that the SARB will cut more deeply than current market pricing suggests. Our forecast anticipates four cuts of 25 bps over the cycle, taking the repo rate to a terminal 5.75%. Three of these cuts are expected in 2026, with a final move in 2027. The January meeting is likely to be skipped, with easing starting in March. However, this outlook remains highly conditional and will ultimately hinge on incoming data. As always, caution will prevail: the SARB will not trade credibility for speed. For now, with inflation anchored, growth edging higher, and policy alignment improving, monetary policy finally has room to support rather than restrain the cycle. The key question is whether expectations (and more importantly, reforms) will hold long enough to let that support translate into durable growth.
A credit boost today, a credibility test tomorrow
SA has received an unexpected boost on the global credit stage. In its latest review, S&P Global Ratings upgraded SA’s foreign-currency sovereign rating to BB from BB-, while maintaining a positive outlook. The uplift was widely anticipated, but the timing surprised many market participants who expected S&P to wait until after next year’s Budget to confirm a longer track record of consolidation under the GNU. Instead, the agency judged that recent progress was credible enough to warrant an upgrade now. The change lifts S&P’s assessment in line with Moody’s (both two notches below investment grade), while placing the agency’s local-currency rating at BB+, the highest rung before investment grade. This one-notch premium reflects SA’s deep and liquid domestic financial markets. Fitch remains more cautious at three notches below investment grade, although its messaging following the MTBPS has also turned more constructive.
S&P cited three factors behind its decision. First, fiscal execution has outperformed expectations. Revenue buoyancy and spending discipline have put SA on track to record a third consecutive primary surplus, with gross debt expected to peak at around 79% of GDP before gradually declining. Fiscal stabilisation stands out globally at a time when many sovereigns are facing rising debt burdens. Second, risks from SOEs have eased, particularly at Eskom. The utility recorded its first operating profit in eight years, loadshedding has moderated, collections have improved, and the debt-relief plan is progressing. These gains signal that the likelihood of large, repeat bailouts is diminishing, reducing contingent-liability pressure on the state. Third, SA’s policy and macro environment have strengthened. The formal adoption of a 3% inflation target, together with the SARB’s entrenched independence and the depth of domestic capital markets, reinforces institutional credibility. S&P also highlighted reform momentum in electricity and logistics, noting that greater policy coherence under the GNU has supported confidence.
The bottom line
By keeping a positive outlook, S&P is signalling that another upgrade is feasible if current trends deepen. A move to a BB+ foreign-currency rating (last seen in 2017) would require further fiscal consolidation, reduced SOE risks, and more visible reform delivery. Achieving this will demand consistent implementation, not merely credible projections. Debt levels today remain higher than they were during the country’s last stint at BB+. The agency also outlined the risks that could stall progress: any reversal in fiscal discipline, renewed SOE pressures, weaker GDP growth, or a deterioration in political cohesion could undermine today’s gains. Growth remains the most significant swing factor, with sustained investment and higher productivity central to the long-term debt story. Moody’s and Fitch were cautiously supportive following the MTBPS, acknowledging revenue resilience and credible expenditure management, but emphasising that future upgrades will depend on delivery, not intention. Taken together, the message from all three agencies is aligned: SA has turned a corner, but sustained discipline and structural progress will determine whether this upgrade marks the start of an upward path — or simply a temporary reprieve.
