The South African Reserve Bank (SARB) has cut its benchmark interest rate by 25 basis points from 8.25 per cent to 8 per cent, owing to lower-than-expected inflation levels.
This rate cut, coming immediately after the US Fed’s 50 per cent rate cut, is the first in over four years.
In August, South Africa’s inflation rate fell to its lowest since April 2021, leaving room for a rate cut.
Headline consumer inflation fell to 4.4 per cent year-on-year from 4.6 in July, below the 4.5 per cent midpoint of the South African Reserve Bank’s target range.
South Africa’s inflation averaged 5 per cent between September 2023, and June 2024, where it declined to 4.6 per cent in July, and 4.4 per cent last month, lower than the SARB’s target.
Before the cut, the SARB had kept the repo rate unchanged at seven policy meetings in a row. Before that, it had raised rates 10 times in a row.
“Our forecasts suggest this progress will be sustained with inflation below the 4.5 percent target range through the horizon in 2026. In the near term, we continue to see a dip in headline inflation supported by stronger exchange rates and lower oil prices,” Lesetja Kganyago, governor of the South African Reserve Bank said.
Kganyago further stated that the rates may likely stabilise at 7 per cent next year, although stronger investments are necessary for higher growth in South Africa.
“The forecast sees rates moving towards neutral next year, stabilising slightly above 7%. As before, the rate path from the Quarterly Projection Model remains a broad policy guide, changing from meeting to meeting,” he said.
