South African Reserve Bank (SARB) Governor Lesetja Kganyago today announced a cut in the repurchase rate (repo rate) for 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%.
The repo rate will now be at 8% while the prime lending rate will come down to 11.50%.
Before today’s announcement, the repo rate stood at a 14-year high of 8.25% and the prime lending rate at 11.75%.
Kganyago said that members of the SARB’s Monetary Policy Committee (MPC) deliberated over a 25 BPS and a 50 BPS but decided to take a more conservative stance with a 25BPS cut. He said that it was a unanimous decision.
The MPC’s decision was aided by a cooling in inflation in the past three months after Statistics South Africa announced yesterday that headline consumer inflation in South Africa fell to 4.4% year-on-year in August from 4.6% in July.
This was the first time since April 2021 that inflation has come in below the SARB’s 4.5% target.
Further to the positive inflation data, the Federal Open Market Committee (FOMC) cut the federal funds target rate by 0.5% to to the range of 4.75%-5%% on Wednesday night, on “progress on inflation and the balance of risks” as the FOMC’s inflation forecasts fell and unemployment rate projections rose.
“As we move towards the end of the year, global inflation is slowing and nearing targets. Given these gains, major central banks have lowered rates. We saw the European Central Bank cut again last week, the Bank of England eased in August, and the US Federal Reserve reduced rates last night. The US dollar has also cooled off in recent months, providing some respite for other currencies, including the rand,” Kganyago said.
“Overall, global conditions have become more favourable, but there are still risks. A ‘soft landing’ is looking more likely, after the worst inflation surge in a generation, but it is not inevitable. The financial market volatility of early August was a reminder of the fragilities and uncertainties in the system. For these reasons, central banks are approaching the endgame with caution,“ the governor further said.
Closer to home, Kganyago said output was marginally below our expectations for the first half of the year.
“We expect improvements in the second half, with growth of 0.6% in both quarters. This reflects rising confidence, in part due to a stable electricity supply. We also expect extra spending given withdrawals from the new Two-Pot retirement system, although some of these funds will be absorbed by debt repayments and tax. For the medium term, our growth projections have once again edged higher. The upgraded forecast is premised on better-functioning network industries, especially electricity, alongside broader reform momentum,” Kganyago said.
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