SA Reserve Bank holds fire, leaves key interest rates unchanged

In its latest meeting, the Monetary Policy Committee (MPC) of the South African Reserve Bank (Sarb) opted to hold the repurchase (repo) rate steady at 7.00%, maintaining the prime lending rate at 10.50%, rather than cutting or raising rates.

Sarb Governor Lesetja Kganyago delivered the news during his address on Thursday citing the inflationary environment in the country. 

Kganyago said, "In our economic modeling, inflation expectations play an important role in shaping the transition to our 3% preference. Given uncertainty about the behaviour of inflation expectations, for this meeting, we considered scenarios where expectations adjust more slowly than they do in our baseline. These scenarios treat expectations as more backward looking, with less attention paid to the Sarb’s communication. The forecast has rates easing gradually as inflation returns to the bottom end of the 3-6% target range. The MPC emphasises that stabilising inflation at 3%, rather than 4.5%, implies a lower longer-term level for the policy rate."

Why No Change Now

The decision follows a period of moderation in inflation, with the latest consumer inflation data showing a slight slowdown. 

While inflation has eased closer to the bottom of Sarb’s 3-6% target range, other risk factors both domestically and abroad counseled caution. 

Economists had been divided ahead of the meeting: some saw the possibility of a cut given inflationary pressures have been easing, while others warned that global uncertainty, including trade disruptions, currency volatility and budget risks. 

"Since September last year, we have reduced rates by 125 basis points, and we want to see how this is affecting the economy, how expectations evolve, and how inflation risks are resolved," the governor added. 

Four members preferred to keep rates on hold, while two favoured a cut of 25 basis points.

Implications for Borrowers and Businesses

Because there was no shift in the repo or prime rate, borrowers with variable-rate loans or credit linked to prime rates will see no immediate reduction in their monthly repayments.

Businesses likewise cannot count on lower financing costs in the near term.

By holding rates steady, Sarb appears to be reinforcing that inflation expectations remain a primary concern.

It also suggests the MPC wants more confirmation that inflation is sustainably on a downward path before loosening policy further.

In addition, external risks, including global interest rates, the rand exchange rate, and supply-chain pressures, remain factors that could upset the delicate balance.

For now, though, South Africans will have to wait before seeing lower borrowing costs.

The stabilisation in rates may bring some predictability, important for budgeting by households and businesses, but little immediate relief.

BUSINESS REPORT