Governor Lesetja Kganyago presenting the MPC results. Photo: Simphiwe Mbokazi / Independent Newspapers.
South African Reserve Bank (SARB) Governor Lesetja Kganyago today announced a cut in the repurchase rate (repo rate) in 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%.
This means that the repo rate will come down from 8% to 7.75% while the prime lending rate decreases from 11.50% to 11.25%.
The MPC’s decision comes off the back of inflation plunging further below the central bank’s 3-6% target range and to its lowest level in 4-and-a-half years.
Data from Statistics South Africa (Stats SA) yesterday showed that the annual consumer price index (CPI) cooled for a fifth consecutive month and declined sharply from 3.8% year-on-year in September to 2.8% October, largely driven lower by declining fuel and food prices.
This inflation print is the lowest since June 2020 during the COVID-19 pandemic when the rate was 2.2%, and was deeper than expectations that it could be between 2.9 and 3%.
“Since our previous meeting, the global macroeconomic context has become more challenging. The dollar has appreciated against most currencies, including the rand. Longer-term interest rates have risen, in the United States and across the globe. Short-term rate expectations have likewise shifted up,” Kganyago said on Thursday.
“In general, monetary policy in major economies remains restrictive, and headline inflation has slowed. While this has provided some room for major central banks to ease rates further, over the past two months, new inflation pressures and heightened uncertainty suggest diminished policy space. With underlying inflation still above target, in several economies, there are risks of policy reversals,” the governor said.
“Against this backdrop, the MPC decided to reduce the policy rate by 25 basis points, to 7.75%, with effect from 22 November 2024. The decision was unanimous. The Committee agreed that reducing the level of policy restrictiveness is still consistent with achieving the inflation target,” the governor announced.
In September, the SARB announced the first interest rates cut in three years as it reduced the policy rate from a 14-year high by 25 basis points from 8.25% to 8% per annum, easing the prime lending rate from 11.75% to 11.50%, after headline eased to 4.4% in August.
Dr Elna Moolman, Standard Bank Group head of South Africa macroeconomic, said this dip in inflation to below the SARB’s target range should be quite temporary.
Moolman said they were expecting a “gradual uptrend” in the inflation numbers from here, and as such the SARB was likely to look through this temporary decline in its interest rate decisions.
“The Reserve Bank typically focuses on inflation 12 to 18 months ahead when monetary policy can have an impact on the inflation prints,” Moolman said.
“We still think the Reserve Bank will gradually cut interest rates until it reaches a neutral level, in other words, until interest rates are no longer restrictive like they are now, but just having a neutral impact on the South African economy.”
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