South African Reserve Bank Cuts Repo Rate to 8% in First Reduction Since 2020

The decision to cut the repo rate signals a shift towards a more accommodative monetary policy stance in light of favorable inflation trends and supportive economic indicators.

The South African Reserve Bank’s Monetary Policy Committee (MPC) has announced a 25 basis point reduction in the repo rate, bringing it down to 8%. This is the first rate cut since 2020, moving the prime lending rate to 11.50%. Key Points from the Announcement:

Rate Cut Decision: The MPC considered various options, including maintaining the current rate, a 25 basis point cut, and a 50 basis point cut. The committee ultimately decided on a 25 basis point reduction, concluding that a less restrictive stance aligns with the goal of sustainably lower inflation over the medium term. The decision reflects a consensus among MPC members that this move is appropriate given current economic conditions.

Inflation Update: The decision comes in response to recent data from Statistics South Africa, which revealed that inflation has dipped to 4.4%, the lowest level since April 2021. Governor Lesetja Kganyago noted that this figure is close to the middle of the Reserve Bank’s target range and forecasts that this trend will continue. The bank’s projections suggest that inflation will remain contained below the 4.5% midpoint through to the end of the forecast horizon in 2026.

Economic Outlook: Kganyago highlighted that the near-term dip in headline inflation is supported by a stronger rand and lower oil prices. The rand has appreciated by nearly 2% relative to the July assumption, which contributes to fuel price deflation. This is expected to help keep headline inflation below 4% through the first half of next year.

Future Guidance: The MPC’s decisions will continue to be data-dependent and sensitive to the balance of risks to the economic outlook. Kganyago emphasized that while the near-term economic indicators are positive, the Reserve Bank will maintain a focus on the medium-term inflation outlook.

Call for Reforms: Kganyago stressed the importance of sustaining reform momentum amid a potentially adverse external environment. He recommended further structural reforms to support growth, efforts to rebuild fiscal and monetary buffers, and measures to improve economic conditions such as achieving a prudent public debt level and addressing administered price inflation.

Inflation Expectations: The Governor reiterated the MPC’s commitment to delivering low and stable inflation, with well-anchored inflation expectations. The committee also suggested additional measures to enhance economic stability and growth.

The decision to cut the repo rate signals a shift towards a more accommodative monetary policy stance in light of favorable inflation trends and supportive economic indicators.