SARB cuts interest rates by 25 basis points

This leaves the prime lending rate at 11%.

The decision was announced by Reserve Bank Governor Lesetja Kganyago on Thursday following the Monetary Policy Committee meeting.

The repo rate cut is in line with predictions by economists.

The announcement also follows last week’s consumer price inflation data by Stats SA, which showed a slight uptick in prices.  

However, December’s CPI remained at 3%, which is at the lower end of the Reserve Bank’s target range of 3% to 6%.  

Kganyago said four members of the MPC  preferred this change, while two supported an unchanged stance.

"The committee ultimately agreed that it was possible to reduce the degree of policy restrictiveness, making the stance somewhat more neutral. However, all members were concerned about the uncertain global outlook," he said.

He added that the forecast sees rates drifting slightly lower over the next few years, stabilising near 7.25%.

"But this rate path from the Quarterly Projection Model remains a broad policy guide. The MPC would like to emphasise that its decisions will be made on a meeting-by-meeting basis, with no forward guidance and no pre-commitment to any specific rate path.

“Such decisions will continue to be outlook-dependent, responsive to data developments, and sensitive to the balance of risks to the forecast.

“Given the challenging global environment, the MPC spent some time during this meeting reviewing a trade war scenario.

“This featured a universal increase of 10 percentage points in US tariffs, with retaliatory measures by other countries.

“The scenario showed higher inflation and interest rates globally, as well as greater risk aversion in financial markets.

“In response, our model projected the rand depreciating to nearly R21 to the dollar, with domestic inflation reaching 5% and the policy rate half a percentage point higher, at its peak, relative to the baseline forecasts," said  Kganyago.

He added that the decision comes amid a complex global economic environment, with risks such as inflation concerns in the United States and rising trade tariffs.

"The space for rate cuts by the Federal Reserve now looks limited, with core inflation still elevated and new inflation risks emerging, such as rising tariffs on trade. It is even possible that US rates could go up again to stabilise inflation.

“Growth outside of the United States is generally more subdued. The largest economies in Europe have had weak economic performance. 

“Germany has had two years of contraction, and both France and the UK have slow growth. At the same time, core inflation remains elevated, and rate-cut expectations have been pared back, although less than in the United States. 

“Meanwhile, China’s economy has been decelerating, with very low inflation and a marked decline in interest rates," said Kganyago.

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