Interest rates cut, Kganyago punts 3% inflation target
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As expected by most economists, the South African Reserve Bank's monetary policy committee (MPC) lowered the repo rate by 25 basis points to 7.25% — a level last seen in January 2023.
Five MPC members opted for the cut, while one member wanted a 50 basis point cut.
Governor Lesetja Kganyago said underlying inflation was well contained, with conditions more settled than during its last meeting in March.
The prime rate is now 10.75%. On a new home loan of R2 million, the rate cut will lower monthly payments by around R350.
Since the prime rate climbed from 7% during the pandemic to 11.75% in May 2023, rates have been cut four times. But the last decrease was four months ago, with the MPC concerned about the impact of US tariffs.
The latest decision comes amid a push — spearheaded by Kganyago — to lower the inflation target. This would mean stricter monetary policy, and could inhibit interest rate cuts.
The inflation target is currently a band of 3% to 6%, with 4.5% seen as the sweet spot.
Kganyago said the MPC believes a 3% target is 'more attractive than the 4.5% baseline'.
But thanks in part to lower fuel prices, consumer inflation has been below 4.5% for nine consecutive months, and it is currently sitting at 2.8% (for April).
However, an increase in the fuel levy (announced in the latest Budget) and higher meat prices may cause inflation to tick higher.
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