South Africa Raised Its Repo Rate to 7.25% Even After the Economy Shrank in the Second Quarter

South Africa's Reserve Bank raised the repo rate 25 basis points to 7.25% on 23 September. Inflation is projected to peak at 5.7% in November 2026.

The South African Reserve Bank raised its policy repo rate by 25 basis points to 7.25% on 23 September, effective from 25 September. The Monetary Policy Committee was unanimous. The decision was taken in a quarter in which the economy went backwards: output contracted 0.2% in the second quarter of 2026, and the bank cut its full-year growth forecast to 1.2% from 1.4%.

The case for tightening sits in the forecast, not the present

Inflation currently runs at 4.4%, inside the bank's target range but heading the wrong way. The committee expects it to peak at 5.7% in November 2026 and to return to around 3% only towards the end of 2027, averaging 3.2% in 2028 and 3.0% in 2029. That is a projected overshoot lasting more than a year. The committee also noted that, on the latest survey by the Bureau for Economic Research, inflation expectations had eased slightly after rising in the previous quarter. Medium-term growth is put at around 2%, roughly double this year's pace.

What a rate decision does to a property market

The statement contains no house-price figure, no mortgage-lending number and no reference to construction. That is normal for a monetary policy statement, and it is also why a rate decision is often misread as irrelevant to property. It is not. The repo rate is the reference from which commercial lenders set the cost of a mortgage, so a 25 basis point move reprices every variable-rate home loan in the country within weeks, and it does so against a backdrop of an economy that shrank last quarter. Higher borrowing costs and falling output are the two conditions that compress transaction volumes.

A market with a data problem worth stating plainly

South Africa is one of the markets where we cannot publish a rental yield, and it is worth saying why rather than showing a blank. There is no published national rent per square metre that can be paired with a national price per square metre from the same publisher for the same segment, so dividing one by the other would produce a number that describes no actual property. What we do carry is a national average price of about 1,149.20 dollars per square metre, drawn from a community-sourced aggregate rather than from the deeds office, and labelled low confidence for exactly that reason.

The numbers that do hold

Transaction costs are the figure a buyer should look at first: around 14% of the purchase price, above Germany's 12.3%, Japan's 10.9% and France's 9.1%, and a level at which a short holding period rarely works arithmetically. Ownership is full freehold with few restrictions on foreign buyers. Over ten years prices are up 39% in local terms and over five years 15.2%. On a valuation basis South Africa scores 29 out of 100, where a higher number indicates a more stretched market. That sits below France at 39 and Germany at 51, and it is a reading that has held while the policy rate has been rising.

Sources: South African Reserve Bank, Statement of the Monetary Policy Committee, 23 September 2026 https://www.resbank.co.za/content/dam/sarb/publications/statements/monetary-policy-statements/2026/september/september-statement.pdf; South African Government News Agency, MPC raises repo rate to 7.25 percent, 23 September 2026 https://www.sanews.gov.za/south-africa/mpc-raises-repo-rate-725

Market data: Cape Town · South Africa