By Lehlohonolo Lehana.
The SA Reserve Bank’s monetary policy committee (MPC) lowered interest rates by 25 basis points – despite a jumbo cut of 50 basis points in the US overnight.
This marks the first time since May 2023 that the committee has changed rates, and it is in line with economist and analyst expectations.
The repo rate is now sitting at 8.00%, and the prime lending rate has been cut to 11.50%. The decision to cut rates was unanimous.
The rate cut comes in the context of lower inflation in South Africa, as well as global central bank moves—mainly the US Fed, which cut rates by 50 basis points on Wednesday.
Reserve Bank governor Lesetja Kganyago, the MPC members considered an unchanged stance, a 25-basis point cut, and a 50-basis point cut.
“The MPC ultimately reached consensus on 25 basis points, agreeing that a less restrictive stance was consistent with sustainably lower inflation over the medium term,” he said.
The governor said that the forecast sees rates moving towards neutral next year, stabilising slightly above 7%, implying another 75-100 basis point cuts to come.
“As before, the rate path from the Quarterly Projection Model remains a broad policy guide, changing from meeting to meeting. Decisions of the MPC will continue to be data dependent, and sensitive to the balance of risks to the outlook,” he said.
Interest rates – which remain at 15-year highs, even after Thursday’s cut – have been weighing on an economy dragged down by load shedding and other problems. The SA economy is only 0.3% bigger than a year ago, the latest GDP numbers for the second quarter showed recently.
Lower interest rates should ease some financial stress and leave consumers with more money to spend, which – along with more a more stable electricity supply and an expected boost of R30 billion in withdrawals from the two-pot retirement system – may go some way towards jump-starting the economy. Since the start of September, pension members have been allowed to withdraw from the “savings” component of their retirement savings, depending on how much they have available, and capped at a maximum of R30 000. This is expected to provide a sizeable boost to retail spending.