Reserve Bank cuts rate by 25 basis points to 7.25%

Mail & Guardian

5 days ago

Reserve Bank governor Lesetja Kganyago
The
This is the fourth reduction in a series of 25 basis point interest rate cuts since September 2024, only interrupted by a pause in March. The decision, which was widely
Kganyago said the decision comes against a volatile global scenario which has seen other central banks cutting interest rates, as well as a low growth projection for the local economy.
'The indicators for sectors like mining and manufacturing have been disappointing, and unemployment has risen. In our last meeting 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, rising to 1.8% by 2027,' he said.
'The outlook for structural reforms remains positive, but there are also headwinds like lower global growth.'
Citing
'This reflects the lower starting point, as well as a stronger exchange rate assumption and lower world oil prices.
'These factors offset pressure on fuel costs from the higher fuel levy announced in the budget. In addition, our previous forecast included VAT increases, which have since been cancelled.'
The move will provide relief for South African consumers, FNB chief executive Harry Kellan said in a note.
'It comes at a time when we're seeing a more positive inflation outlook for the rest of the year, along with growing urgency to boost economic activity. That said, we may still see repo rates reduced once more this year, something we'll be watching closely in upcoming MPC meetings,' he said.
Referring to current discussions to change the bank's inflation target, Kganyago said 'for some years now, internal and external analysis has shown that our inflation target is too high and too wide'.
He added that the Reserve Bank and the treasury had extensively discussed this issue and technical work was at an advanced stage.
'Now that inflation has slowed, we have a chance to lock in lower inflation at low cost. This scenario illustrates that opportunity,' he said.
Kganyago said there was a consideration for a 3% objective from the current 4.5% mid-point target, which would pave the way for lower interest rates.
'For a 3% objective, our quarterly projection model shows a lower path for interest rates. Both our baseline and the 3% scenario have a cut in this quarter. However, rates move steadily lower in the scenario as inflation comes down,' the governor said.
'Inflation expectations stabilise at 3% during 2026, helped by the experience of lower inflation. Growth is somewhat slower at first, because real rates are initially higher, but the
The economy does better later in the forecast, as rates ease further.'
The monetary policy committee will next meet in July.