Sarb cuts interest rates by a conservative 25 basis points – The Mail ...

Reserve Bank governor Lesetja Kganyago

The South African Reserve Bank’s monetary policy committee (MPC) voted to cut interest rates by 25 basis points to 7.75% on Thursday, noting the recent slowdown in inflation but warning that the risk outlook required a cautious approach. 

Reserve Bank governor Lesetja Kganyago said the decision was unanimous.

This also brings the prime lending rate — which is the rate commercial banks charge customers who need to borrow money — down by 0.25 percentage points to 11.25%.

“I think 25 basis points is cautious because the environment is uncertain and it calls for caution. 

“Inflation in the US surprised and came above expectations and similarly in the UK. In the Euro area, wages were rising at the fastest rate since 2000. That tells you the scale you are faced with, the uncertainty we face,” Kganyago told journalists at a briefing to announce the interest rate decision.

“The disinflation process is there but it is clearly a very bumpy road and it is making central banks cautious across the globe. As a central bank in a small, open economy, caution is what is going to be at play.”

Thursday’s move follows a 25 basis point cut at the last MPC meeting in September — the first rate reduction in four years — which sparked positive sentiment. 

This week’s rate cut was widely anticipated, with economic analysts forecasting an additional 50 basis point reduction in the first half of 2025.

“The [central bank’s] decision to drop interest rates by 25bps could spark a wave of movement across South Africa. With lower rates making homeownership more accessible, we’re likely to see first-time buyers stepping onto the property ladder and families upgrading to larger homes,” said Chante Venter, the chief executive of tech start-up Wise Move.

“We’ve already observed a surge in demand for moving services — typical for this time of year — but this rate cut is expected to accelerate that trend as more South Africans seize this opportunity to relocate and start new chapters in their lives.”

Thursday’s decision came a day after data from Statistics South Africa showed that  inflation had slowed sharply in October to 2.8% from 3.8% in September, the lowest reading in South Africa since June 2020 when it was 2.2%.

Kganyago noted that headline inflation had dipped below the Reserve Bank’s target range of 3% to 6% and that the prices of goods had slowed more than those of services, which mainly reflects the benefits of a stronger exchange rate and a lower oil price relative to last year. 

“These temporary supply shocks are likely to keep inflation below 4% until mid-2025. Thereafter, we see inflation modestly higher, relative to our September projections, reaching 4.6% from late 2025. This is because of a higher electricity price assumption,” the governor said. 

“In the near term, inflation appears more contained, however, the medium-term outlook is highly uncertain, with material upside risks. These include higher prices for food, electricity and water.” 

He said global interest rates could shift higher again and the recent rand depreciation demonstrated how rapidly changes in the global environment could affect South Africa.

The rand has weakened from R17.49 to the dollar and has been above R18 since the US presidential election at the start of the month.

The dollar gained on the back of safe haven inflows into US treasuries over concerns of a weaker global outlook, higher US inflation and fewer US interest rate cuts, according to Investec chief economist Annabel Bishop. 

Kganyago said the Reserve Bank’s forecast sees more cuts in the repo rate, “stabilising a bit above 7%”.

The next MPC meeting is on 30 January 2025.