SA Reserve Bank cuts interest rates
Ashley Lechman | Published 5 hours ago
The South African Reserve Bank (Sarb) Governor Lesetja Kganyago on Thursday announced a cut to the repurchase rate (repo rate) by 25 basis points (BPS).
This comes after the central bank's Monetary Policy Committee (MPC) met this week and voted to decrease the repo rate from 7.50% to 7.25%.
This means that the p rime lending rate in the country will decrease from 11.00% to 10.75%.
The decision come s off the back of Statistics South Africa announcement last week that CPI inflation edged up slightly from 2.7 % in March to 2.8% in April.
Kganyago said, "Five members preferred this action, while one member preferred a cut of 50 basis points."
The governor said that global economic conditions have been volatile.
"A combination of higher trade barriers and elevated uncertainty is likely to weaken the world economy. We have therefore lowered our global growth projections, from 3.1% to to 2.5% for 2025," he said.
"In the previous MPC statement, we warned of downside risks to our growth forecast. We have now trimmed our GDP projections and currently expect growth of 1.2% this year. The outlook for structural reforms remains positive, but there are also headwinds," Kganyago said.
"We have revised down our inflation forecasts. This reflects the lower starting point, as well as a stronger exchange rate assumption and lower world oil prices. Our previous forecast also included VAT increases, which have since been cancelled," the governor said on Thursday.
"The threat of rand depreciation that we warned of at the previous MPC meeting manifested last month, with the currency briefly touching a multi-year low against the US dollar. However, the exchange rate has since recovered, and conditions seem more settled now than they did in March," Kganyago said.
"We considered a scenario with a 3% inflation objective, which corresponds to the low end of our target range. This showed a lower path for interest rates, with the policy rate falling below 6%, instead of staying around 7%, as in our baseline forecast," he said.
Ahead of today's announcement, Debt experts and economists had widely predicted a cut in the rate.
Casey Sprake, an economist at Anchor Capital, said South Africa's headline consumer inflation edged slightly higher in April, rising to 2.8% year-on-year from 2.7% in March. The latest inflation data strengthened the case for monetary easing.
'With core inflation easing, wage growth muted, and consumer demand soft, real interest rates remain in restrictive territory. This means that current monetary policy is still exerting a significant dampening effect on the economy. As such, we expected the South African Reserve Bank (SARB) to cut the repo rate by 25 basis points.The likelihood of a third rate cut later in 2025 remains evenly balanced at this stage,' Sprake said.
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