By Lehlohonolo Lehana.
The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) has decided to cut the interest rate by 25 basis points (bps) for the first quarter of 2025.
The reduction takes SA’s prime interest rate for commercial banks to 11%.
The last time SA’s repo rate was below 7.75% was in the first few months of 2023.
Four members voted for the cut, while two voted for rates to remain unchanged.
The latest decision by the MPC was in line with expectations on the back of lower inflation in South Africa.
The latest inflation data from South Africa stood at 3.0% in December, well below the SARB’s midpoint target of 4.5%.
This is the third cut the MPC has implemented in the current cycle, which started in September last year with a 25 basis point cut. Including the cut from November, the MPC has now cut rates by a cumulative 75 basis points.
While this will bring significant relief to South African households, it is still a far cry from the 475 basis points the MPC has hiked rates by over the past three years.
Reserve Bank Governor Lesetja Kganyago said the MPC’s forecast sees rates drifting slightly lower over the next few years, stabilising near 7.25%.
However, he emphasised that the committee’s decisions will be made on a meeting-by-meeting basis, with no forward guidance and no pre-commitment to any specific rate path.
“Such decisions will continue to be outlook dependent, responsive to data developments, and sensitive to the balance of risks to the forecast,” he said.
The governor also warned that risks to the inflation outlook are assessed to the upside.
“In the near term, inflation appears well contained. However, the medium-term outlook is more uncertain than usual, with material risks from the external environment,” he explained.
Kganyago added that the US Fed may even increase rates to tackle inflation.
Europe also sees weak economic growth expectations and elevated inflation targets, while China’s economy has been decelerating, which is marked by low interest rates and deflation.
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Video Courtesy of SARB.