By Lehlohonolo Lehana.
The Monetary Policy Committee of the South African Reserve Bank has lowered interest rates or repo rate by 25 basis points, leaving repo rate at 6.75 and prime lending rate to 10.25. The decision was unanimous.
Markets were divided ahead of the announcement, following the rise in October inflation to 3.6%, which is outside the SARB’s newly adopted 3% target.
The rate cut comes amid improved economic sentiment, supported by stronger revenue for National Treasury, an S&P Global upgrade and South Africa’s exit from the Financial Action Task Force’s grey list.
The MPC’s decision was unanimous, Sarb governor Lesetja Kganyago said. “Members agreed there was scope now to make the policy stance less restrictive in the context of an improved inflation outlook.”
The move to a new inflation target, as announced by Finance Minister Enoch Godongwana in his medium-term budget policy statement, marks a significant shift from the framework that has been in place for a quarter of a century.
“As announced last week, we have moved away from the 3% to 6% target range, which was established 25 years ago,” he noted.
The revised target is 3% plus or minus one percentage point, effectively replacing a wide range with a more precise anchor.
He added that as the country shifts from a range target to a point target with a tolerance band, it is important to understand what the new framework implies.
The tolerance band allows for inflation between 2% and 4%. “But that does not mean we will be indifferent to inflation anywhere between 2% and 4%. We want to be at 3%,” Kganyago stressed.
He pointed out, though, that no central bank has the tools to deliver inflation at an exact point all the time.
As flexible inflation targeters, we also recognise that trying to offset all price shocks would create undesirable volatility in output. To support communication and accountability, we therefore want it understood that inflation will not always be precisely 3%.
“When there are deviations, we will explain what has driven inflation away from target, and we will do what is required to get back to target,” he added.
Asked why the Sarb did not consider a more generous 50 basis point cut, Kganyago said the environment remains highly uncertain.
“It’s important that we move with caution … There was no 50 basis point [cut] proposed by any member of the MPC.”
The November meeting marks the final rates decision for the year, with the MPC expected to meet again in January 2026.
Tando Ngibe, Senior Manager at Budget Insurance says it’s important to note that monetary policy actions typically take 12 to 24 months to fully affect prices. Therefore, while the 3% inflation target is on track, it will take some time to realize.
“For consumers, this rate cut may lead to lower borrowing costs, making loans and mortgages more affordable. If you’re carrying high-interest debt, consider directing some of the funds from this relief towards paying it down. This can save you money in interest payments over time. Additionally, think about investing any extra savings to build a more secure financial future.”
Overall, this is a cautiously optimistic outlook for consumers as we navigate the economic landscape together, added Ngibe.
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Video Courtesy of SARB.