SARB cuts repo rate by 25 basis points

The repo rate, at which the central bank lends money to commercial banks, now stands at 7.25 %.

The prime lending rate has been lowered to 10.75%.

The cut comes as good news to indebted consumers battling the high cost of living.

Consumer inflation rose slightly in April to 2.8%, up from 2.7% in March.

Finance Minister Enoch Godongwana has also proposed increasing the fuel levy by 16 cents per litre on petrol and 15 cents on diesel, starting on 5 June.

Reserve Bank Governor Lesetja Kganyago announced the MPC's decision on Thursday.

"The exchange rate has since recovered, and conditions seem more settled than they did in March, even if the global environment remains uncertain,” he said.

"While the inflation outlook appears benign, we considered an adverse scenario, which illustrates the upside risks. This was based on a global slowdown, triggered by escalating trade tensions, where the rand depreciates sharply."

Kganyago said the country risks stagflation, with growth moving lower while inflation rises due to currency weakness. 

"We also considered a scenario with a 3% inflation objective, which corresponds to the low end of our target range. For some years now, internal and external analysis has shown that our inflation target is too high and too wide."

Kganyago said that for a 3% objective, the Quarterly Projection Model shows a lower path for interest rates.

"Both our baseline and the 3% scenario have a cut in this quarter. However, rates move steadily lower in the scenario as inflation comes down," he added.

ALSO READ: