South Africa’s inflation framework has changed, and this shift could influence the cost of credit, interest rates, and how households plan repayments in the years ahead. In November 2025, the government formally changed South Africa’s inflation target, signalling a potential structural shift in monetary policy that borrowers and consumers should understand.
Definition: Inflation is the general, sustained increase in prices for goods and services across an economy over time, which reduces the purchasing power of money. I.e, your Rand buys fewer items today than it did previously.
What Changed? The New Inflation Target
For more than two decades, South Africa’s official inflation target was set as a range between 3% and 6%, with the central bank (South African Reserve Bank, SARB) typically focused on keeping inflation close to the midpoint (around 4.5%).
On 12 November 2025, the Minister of Finance announced a new target of 3% with a 1-percentage-point tolerance band, meaning inflation is now expected to settle around 3%, but can fluctuate between 2% and 4% without triggering policy concerns. This is the first adjustment to South Africa’s inflation target in 25 years.
The announcement was a joint decision between the National Treasury and the SARB, and reflects an effort to anchor inflation expectations more tightly and align South Africa with many global peers - who target inflation closer to 2–3%.
Inflation Expectations and Borrowing Costs
One key reason central banks set inflation targets is to influence inflation expectations - the public’s beliefs about future price rises. Expectations themselves can shape actual inflation through wage demands, price setting and financial planning. After the target was set, surveys showed that expectations for inflation in 2026 and beyond fell sharply, with economists and business leaders forecasting lower inflation compared with earlier projections.
This shift matters because inflation expectations influence interest rates. If people and markets believe inflation will be lower over time, lenders can price loans at lower interest rates, since they don’t need to compensate as much for the eroding value of money. Lower nominal interest rates make borrowing cheaper for consumers on personal loans, vehicle finance and mortgages alike.
Already, SARB’s Monetary Policy Committee (MPC) has begun to operate with the new 3% inflation objective in its forecasting and decision parameters. In its January 2026 statement, the MPC acknowledged that inflation was slightly above the target but expected it to moderate over time, and it kept the policy (repo) rate unchanged at 6.75% while signalling that inflation could eventually allow lower rates.
Interest Rates and Consumer Credit
Inflation targeting is a core element of monetary policy, it guides how a central bank sets its policy rate, which then influences bank and credit provider rates. In South Africa, the policy rate (repo rate) serves as the basis for many loan products: a lower policy rate typically translates into lower prime lending rates and lower borrowing costs for consumers.
While SARB kept the rate unchanged in early 2026, its projections show inflation declining toward the 3% objective, suggesting room for future rate cuts, if data supports it. Lower rates can mean reduced monthly instalments on variable-rate loans and more affordable borrowing for household purchases.
This change also affects SADC and global markets: as inflation expectations fall, South African government bond yields and credit spreads can tighten, reducing costs for both public and private borrowing.
What This Means for Household Debt & Repayments
For everyday borrowers, a central bank targeting lower inflation - and ideally achieving more stable prices - presents several direct and indirect implications:
1. Reduced Interest Costs Over Time
As inflation becomes better anchored closer to 3%, central banks can afford to keep policy rates lower over the medium term. Lower base rates can reduce interest on variable-linked loans such as personal credit facilities or credit cards, decreasing monthly instalments and total interest paid over the life of a loan.
2. Better Planning and Budgeting
Tighter inflation control often leads to less volatile price movements. For consumers managing monthly budgets, a predictable inflation environment means fewer sudden jumps in essential expenses like food, fuel and utilities.
3. Improved Purchasing Power
When inflation is lower and stable, the real value of income erodes more slowly. This enhances consumers’ purchasing power, making it easier to save and repay debt over time, rather than struggle with rapidly rising costs.
4. Confidence in Long-Term Credit Decisions
Lower and stable inflation can boost confidence among borrowers considering major purchases like vehicles or appliances on credit. It can also support more favourable home loan terms, benefiting first-time buyers or those refinancing existing debt.
But It’s Not Automatic - Risk Factors Remain
Despite the new target, several factors can still challenge inflation and borrowing conditions:
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Administered prices, such as electricity, water and fuel, can be volatile and put upward pressure on inflation. Higher electricity tariffs, for example, can ripple through household budgets and inflation measures.
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Global pressures, like commodity price swings or exchange rate movements, can push inflation above target and delay rate reductions.
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Inflation does not influence interest rates instantly - monetary policy works with a lag, meaning the full effects may take 12–24 months to play out.
Looking Ahead: What Borrowers Should Know
For consumers with credit agreements and repayment plans, the new inflation target is a positive macroeconomic signal. If inflation truly stabilises closer to 3%, this can support lower interest rates, more predictable costs, and greater confidence in financial planning.
However, individual credit costs will still depend on broader financial conditions, lending risk assessments and the terms set by credit providers. While the new inflation framework creates a supportive backdrop, borrowers should continue to:
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Review repayment plans regularly
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Build emergency savings where possible
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Avoid over-leveraging in uncertain parts of the economy
A lower inflation target doesn’t reduce the need for prudent financial management, it simply creates an environment where stability and lower borrowing costs are more achievable. At RCS you can secure personal loans online with interest rates as low as 15%, with a simple application process and loan amounts of up to R300 000. Visit the RCS website today to find out more.
