South African Reserve Bank cuts interest rates by 0.25 percentage points

South African Reserve Bank Governor, Lesetja Kganyago, on Thursday announced that the Monetary Policy Committee had voted to cut the interest rate by 0.25 percentage points on the back of lower inflation and a stronger rand.

At the same time, Kganyago, said that the inflation target should be dropped to 3%, rather than the 3% to 6% range as is currently the situation.

The Governor made this announcement as he revised the bank’s gross domestic product expectation lower to just 1.2% this year, lower than Finance Minister Enoch Godongwana’s anticipated 1.4%, which he made earlier this month during the third iteration of the National Budget.

The cut in the interest rate drops the prime lending rate to consumer to 10.75%, depending on risk.

The decline means a saving of just more than R2 000 on a R1 million home at prime, assuming a 20-year bond. For a R400 000 car, the decline in payments comes to R612 a year.

Kganyago noted that there several countries lowering interest rates, excluding the US.

The bulk of economists had expected the rate to be cut by 0.25 percentage points, with arguments in favour pointing to a stronger rand, which has been trading below R18 to the dollar on a continuous basis since May 19.

The local currency was last at this level at the beginning of December last year before it started losing traction against the dollar about two weeks before Donald Trump was sworn in as the 47th US President on January 2025.

In addition, a low inflationary environment has aided expectations of a decline in interest rates. Inflation for April came in at 2.8%, a percentage point increase on March’s 2.7%, with both numbers below the central bank’s 3% to 6% target range.

The Producer Price Index, a forerunner to inflation, came in unchanged at 0.5% in April on an annualised basis when compared with March. This was, however, higher than the consensus of economists polled by Bloomberg.

Kganyago noted that there had been disappointing growth figures from sectors such as mining and manufacturing.

IOL