South African Reserve Bank (SARB) Governor Lesetja Kganyago today announced a cut in the repurchase rate (repo rate) in the country.
Kganyago said the central bank is cutting the repo rate by 25 basis points (BPS), meaning rates will come down by 0.25%.
This means that the repo rate will come down from 8% to 7.75% while the prime lending rate decreases from 11.50% to 11.25%.
The MPC’s decision comes off the back of inflation plunging further below the central bank’s 3-6% target range and to its lowest level in 4-and-a-half years.
Data from Statistics South Africa (Stats SA) yesterday showed that the annual consumer price index (CPI) cooled for a fifth consecutive month and declined sharply from 3.8% year-on-year in September to 2.8% October, largely driven lower by declining fuel and food prices.
This inflation print is the lowest since June 2020 during the COVID-19 pandemic when the rate was 2.2%, and was deeper than expectations that it could be between 2.9 and 3%.
“Since our previous meeting, the global macroeconomic context has become more challenging. The dollar has appreciated against most currencies, including the rand. Longer-term interest rates have risen, in the United States and across the globe. Short-term rate expectations have likewise shifted up,” Kganyago said on Thursday.
“In general, monetary policy in major economies remains restrictive, and headline inflation has slowed. While this has provided some room for major central banks to ease rates further, over the past two months, new inflation pressures and heightened uncertainty suggest diminished policy space. With underlying inflation still above target, in several economies, there are risks of policy reversals,” the governor said.
Frank Blackmore, Lead economist at KPMG told Business Report that there was no argument between MPC members in deciding on a 25 basis point cut to the repo rate.
Blackmore said, “The committee has unanimously decided to reduce the repo rate by 25 basis points. The governor emphasised that there was no debate over a larger rate cut and 50 basis points therefore were never considered this time even though the October inflation came out below the target range at 2.8%.”
“The reason that the governor put for this is that there is a lot of uncertainty around the global economy, and that uncertainty is a risk that requires a cautious approach. We've seen large appreciations in the Rand after the US elections, and next year the Reserve Bank has pulled in increases in electricity, water, and food prices - all of which are putting upward pressure on inflation in future and, therefore, in his words, justify a cautious approach,” Blackmore further said.
“Saying that we have now reduced from the highs of 8.25% to the current rate of 7.75% leaving the prime interest rate at 11.25%. This trend is going to continue into 2025 and will be data dependent," Blackmore further added.
Meanwhile, Neil Roets, CEO of Debt Rescue said that this should sound the alarm among the country’s leaders if nothing else does.
“Regardless of the economic factors, ordinary South Africans continue to bear the brunt of the highest interest rates the country has experienced in over a decade, along with relentless increases in living costs, a water scarcity crisis that is rapidly escalating and a seasonal drought which could seriously impact food crop quantities as we head into the festive season,” Roets told Business Report.
“This means we could see families across the nation grappling with escalating food insecurity and even higher food prices. Much more urgent action is needed, especially from the major retailers who benefit from high food prices,” Roets further said.
BUSINESS REPORT