What the new inflation target means for rentals

The South African Reserve Bank has cut its inflation target, which has the twin effect of reducing the chances of future interest rate cuts and making it no easier for landlords to invest.

Alongside the lower inflation target of 3% (down from 4.5% before), the Bank lowered the prime rate to 10.25%. But following the inflation target adjustment, banking and wealth management group Investec now forecasts just two further 25-point cuts in 2026 and one in 2027 after the three cuts announced in 2025.

The strategy of persistent high interest rates to achieve a lower inflation target is likely to limit the growth of the residential rental sector. While the prime rate is below the peak of the most recent interest rate cycle, it is the highest it has been since 2016.  

However, the MPC announcement is good news for existing buy-to-let arrangements. For one thing, the latest rate cut will reduce expenses for landlords with geared properties. For another, it will give tenants a bit more breathing room with their debt payments, helping them stay out of arrears.

The new inflation target will also help support real-terms rental growth, helping landlords and rental agencies to stay profitable. Rental growth has been consistently above the 3% inflation target since Q4 2022, so lower inflation will widen the gap between inflation and rent growth, as outlined in the PayProp Rental Index.