Latest news with #LesetjaKganyago
IOL News
a day ago
- Business
- IOL News
Reserve Bank's interest rate cut: response to low inflation and economic challenges
The South African Reserve Bank has lowered interest rates in response to a low inflation rate, but experts warn that rising taxes could still burden households. This article explores the implications of the rate cut and the ongoing economic challenges facing South Africa." Image: File The low inflation rate was the driver behind the South African Reserve Bank (Sarb) Governor Lesetja Kganyago lowering interest rates this past week. Kganyago announced that the central bank's Monetary Policy Committee (MPC) voted to decrease the repo rate from 7.50% to 7.25%. This means that the prime lending rate in South Africa has been lowered from 11% to 10.75%. Frank Blackmore, Lead Economist at KPMG told Business Report that the reason for this was the low inflation rate. Blackmore said, "The Reserve Bank remains data dependent in that respect, as well as the easing of some of the risks such as the exchange rate. Appreciation from the highs over R19, back down to around R18 to the dollar level and as well as the oil prices, which have remained low at this point. They have also taken into consideration that the Value Added Tax (VAT) hike will not take place, also eases future inflation in that respect." "An interesting analysis was also done by the MPC regarding an upside risk scenario if things worked in the other direction and South Africa would face a kind of stagflation scenario including weak economic growth and tight monetary policy reacting to higher levels of inflation, all caused by perhaps, the trade wars that are currently ongoing globally. Probably more interestingly another scenario where they're reducing the target rate from a current 4 1/2% objective, so the midpoint of the three to 6% range to the 3% objective so the bottom of their three to 6% range. This puts us closer in line with many of our trade partners as well as being closer to the median emerging market rate of around 3%," the economist said. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Next Stay Close ✕ Ad Loading "In this situation, the benefits would also fall to all South Africans meaning that lower inflation would preserve the value of the earnings and wealth in future periods. Given the low inflation that we are currently experiencing this would be the right time to institute such a change," Blackmore further added. Neil Roets, CEO of Debt Rescue, told Business Report that the announcement of a BPS cut to the repo rate may be good news for economists, but will not shield South Africans from the burden of the fuel and sin tax levies that have been introduced by Finance Minister Enoch Godongwana within his Budget 3.0 projection. Roets warned that increased taxing of the workforce is not the answer, referring to the fuel-tax levy and raising sin taxes even higher, and will put further financial strain on households, driving them to new depths of despair. "This, at a time when they are buckling under the weight of multiple unsustainable inflation-related living costs. The reality is that the Finance minister's decision to impose new tax measures will hurt lower-income families most, as they will bear a proportionally higher burden, thus forcing them to make impossible lifestyle choices with the little disposable income they have left,' Roets said. Roets said that Kganyago is a longstanding advocate of shifting to a lower inflation target, arguing this would make the nation better placed to compete with its trading partners. 'A single-point target of 3% would be in line with South Africa's peers and lead to lower interest rates in the long term,' he has previously said. "His critics worry that reaching a lower inflation target would require tighter monetary policy however, that would cost growth and employment in a country with one of the highest jobless and poverty rates on earth. The Governor reiterated his view saying that the MPC is of the view that the 3% scenario is more attractive than the 4.5% baseline, and they would like to see inflation expectations move lower, towards the bottom end of their target range. He also said the MPC will consider scenarios with a 3% objective at future meetings," Roets said. A lower inflation target risks scuppering further interest rate cuts this year too, Investec Chief Economist, Annabel Bishop warned Bishop said, 'With a change to the inflation target reportedly occurring soon this year, the Sarb has chosen to cut interest rates this month to avoid the limitation of doing so in the future, but then could easily be at risk of needing to reverse the cut.' 'The reality is that the slow pace of the country's repo rate reductions is perpetuating the debt trap that millions of ordinary South Africans find themselves in, leaving millions with no option but to survive on credit,' Roets further said.
IOL News
2 days ago
- Business
- IOL News
SA Reserve Bank cuts interest rates: What it means for consumers
South African Reserve Bank Governor Lesetja Kganyago. Image: Thobile Mathonsi / Independent media. South African consumers cheered as the South African Reserve Bank (Sarb) cut the interest rate this past week, however, a wider view shows that the relief could be undone by other costs increasing. Sarb Governor Governor Lesetja Kganyago decreased the repurchase rate for the country by 25 basis points (BPS), dropping the repo rate from 7.50% to 7.25%, effectively taking the prime lending rate to the country to 10.75%, from 11%. Hayley Parry, Money Coach and Facilitator at 1Life's Truth About Money told Business Report that the cut could not have come at a better time. Parry said, "What that means is that, for anyone paying back any debt, it means that you are going to be able to save on your debt repayment. For example, for every million Rand you have in a home loan for instance you are now going to be paying R515 less per month at this new interest rate, thanks to the reduction in the interest rate." "It could not come at a better time because there has been a lot of pressure on South African consumers, with increasing electricity prices kicking in. This is great news for anyone who has been feeling the pinch and been struggling to make ends meet. Hopefully, this is going to provide a little bit of breathing room. If you happen to have any money leftover thanks to this reduction in the interest rate, my advice as always is to make sure you put aside extra cash into your emergency fund because you never know when that may come in handy," Parry added. Tando Ngibe, a senior manager at Budget Insurance said, 'This move offers some relief to consumers, particularly those managing debt, as it slightly reduces the cost of borrowing on home loans, personal loans, and credit facilities. This modest cut should be seen as a chance to reinforce, not relax, responsible financial habits. We urge consumers to use any savings from lower repayments to prioritise essential expenses, reduce high-interest debt, and build emergency funds. While the rate cut may support economic activity, it's important to remain cautious. Inflation risks still persist, and returns on savings may decline. Consumers should continue to budget carefully in order to remain financially resilient in these uncertain times.' Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. 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Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Next Stay Close ✕ Consumers still drowning in debt Meanwhile, Neil Roets, CEO of Debt Rescue gave a more scathing view on the Sarb's rate cuts. Roets said that the announcement of the 25BPS cut, may be good news for economists but will not shield South Africans from the burden of the fuel and sin tax levies introduced by Finance Minister Enoch Godongwana within his Budget 3.0 projection. Roets said, "Increased taxing of the workforce is not the answer, the fuel-tax levy and raising sin taxes even higher, will put further financial strain on households, driving them to new depths of despair. This, at a time when they are buckling under the weight of multiple unsustainable inflation-related living costs. The reality is that the Finance minister's decision to impose new tax measures will hurt lower-income families most, as they will bear a proportionally higher burden, thus forcing them to make impossible lifestyle choices with the little disposable income they have left." "The reality is that the slow pace of the country's repo rate reductions is perpetuating the debt trap that millions of ordinary South Africans find themselves in, leaving millions with no option but to survive on credit. This scenario has been escalating since the prolonged tightening cycle began towards the end of 2021, when the Monetary Policy Committee raised the repo rate by a cumulative 4.75% between November 2021 and May 2023, taking it from 3.50% to 8.25%, the highest level since 2014. Sadly, this means more and more South Africans are relying on their credit and store cards to put food on the table and keep the lights on," Roets further said. "The likelihood is that they will default on debt and fall into an even deeper trap, as the cost of credit rises due to existing debt. This is most evident with big purchases like home and car loans. South Africans need real financial relief. This is a glaring red flag that should be at the top of the list of concerns of the authorities," Roets said.
IOL News
3 days ago
- Business
- IOL News
South African Reserve Bank cuts repo rate to support struggling workers
In a positive move for South African workers grappling with rising debt levels, the Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) this week announced a reduction in the repo rate by 25 basis points, lowering it to 7.25%. This decision comes as a welcome relief for many households facing financial difficulties and aims to stimulate broader economic recovery. Governor Lesetja Kganyago revealed that the decision is accompanied by a more favourable outlook for consumer price inflation (CPI). This raises the possibility of an additional reduction of 25 basis points later this year, provided that both global and domestic economic conditions remain conducive to a low CPI.
News24
4 days ago
- Business
- News24
Reserve Bank trims interest rate amid global uncertainty and explores lower inflation target
The Central Bank reduced the repo rate by 25 basis points amid slowing inflation and a subdued global growth outlook. Governor Lesetja Kganyago confirmed ongoing work towards potentially lowering the inflation target. A lower inflation target could lead to lower interest rates over time, potentially benefiting borrowers and supporting economic growth and job creation. The SA Reserve Bank (SARB) has reduced its policy rate by 25 basis points, effective 30 May, in response to a complex mix of global economic uncertainty, subdued domestic growth, and well-contained inflation. The decision, announced by Governor Lesetja Kganyago following the monetary policy committee (MPC) meeting on Thursday, reflects both local and international headwinds, as well as a growing policy debate around lowering the inflation target. Five MPC members supported the 25 basis point cut, while one preferred a more aggressive 50 basis point reduction. The move brings the repo rate down in a context where global interest rates have generally softened, despite volatile financial markets and increased geopolitical risks. Kganyago noted that global economic conditions had remained volatile since the MPC's previous meeting. The US had introduced higher import tariffs only to partially reverse them, contributing to market fluctuations. US assets have sold off, while alternative safe havens, such as gold and the euro, have performed well. Lesetja Kganyago The Reserve Bank has revised its global growth forecast downwards, citing elevated uncertainty and higher trade barriers. Inflation prospects remain mixed. While tariffs and supply chain disruptions could push inflation up in some economies, other forces such as lower oil prices and subdued global demand could pull inflation down. The US Federal Reserve has left its rates unchanged, but other central banks, including the Bank of England and European Central Bank, have eased monetary policy. Domestic growth and inflation outlook At home, the SARB has lowered its GDP growth projection for this year to 1.2%, expecting a gradual rise to 1.8% by 2027. The first quarter's official growth data is still pending, but indicators from sectors such as mining and manufacturing have been weaker than expected, and unemployment has increased. Inflation, meanwhile, fell below 3% last month, driven largely by lower fuel costs. Core inflation, which excludes volatile items, was at the bottom end of the bank's target range. The central bank has also revised its inflation forecast downwards, supported by a stronger rand, lower oil prices and the cancellation of a previously expected VAT increase. Despite this benign inflation environment, the MPC assessed risks as balanced, citing possible currency volatility due to both global and local developments. The rand briefly touched multi-year lows against the US dollar last month but has since stabilised. Inflation target review underway In addition to the rate decision, Kganyago addressed ongoing work to review the country's inflation targeting framework. He said the Reserve Bank, together with the National Treasury, was considering whether SA should adopt a lower inflation target, possibly 3%, down from the current 3% to 6% band. 'Much of the heavy technical work has been done,' said Kganyago. 'We've benchmarked against both advanced and emerging economies. Many countries have revised their targets lower over time.' We are now assessing the transition, how to move from one target to another, over what period, and what support would be needed from other areas of economic policy. Lesetja Kganyago Kganyago cited international trends, noting that advanced economies typically target 2%, while the median inflation target among emerging markets is around 3%. He said that interest rates in countries with lower inflation targets are also generally lower. Responding to questions from journalists, Kganyago rejected the notion that lower inflation targets necessarily imply higher interest rates. 'That argument just baffles me,' he said. 'Countries with 2% inflation targets often have lower rates than we do.' If adopted, a lower inflation target could result in structurally lower interest rates over time, which would benefit borrowers. According to the SARB's modelling, in a 3% inflation scenario, the policy rate would fall to just under 6%, compared to remaining above 7% under the current framework. 'We would be a low inflation, low interest rate country,' Kganyago said. However, the governor acknowledged that the transition would require coordination beyond monetary policy. Administered price setters, for example, may need to adjust their pricing behaviour in line with a lower inflation environment. A move to lower inflation targeting could also support longer-term growth and job creation. 'You end up with higher growth over the forecast horizon,' said Kganyago. 'A growing economy should also create jobs.'
Bloomberg
4 days ago
- Business
- Bloomberg
South Africa's Kganyago Provides Fuel for Best Bond Return in EM
South Africa's central bank chief has given the country's local-currency bonds another reason to add to their market-leading returns. Investors are piling into the debt after South African Reserve Bank Governor Lesetja Kganyago argued strongly on Thursday for a reduction of the inflation target which, he said, would boost growth and lead to lower interest rates in the long term. Yields on 10-year government bonds plunged 16 basis points, and extended the drop on Friday to a six-month low.
