The South African Reserve Bank (SARB) has announced a 25 basis point cut to interest rates to 8% per annum for the first time in over two years today, following a period of tight monetary policy, Cape {town} Etc reports.
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SARB Governor Lesetja Kganyago presented the Monetary Policy Committee (MPC) at 3pm today.
The new cuts will come into effect on Friday, 20 September.
While the MPC considered a 50bps rate cut, Kganyago reiterated that the decision was unanimous in choosing a 25bps cut based on a risk-based approach.
‘We exercise judgement in the analysis. We found 25bps to be a prudent stance to take. It has to do with the fact that there is so much uncertainty. We (…) revised our inflation forecast and (…) thought that inflation would average 4.6%.’
He said the two-pot retirement system was also taken into account.
‘The impact of the two-pot system is built in our forecast. We’ve got two scenarios, a high-withdrawal scenario and a moderate withdrawal.
‘If they channel that into debt repayment, it will offer consumers higher buying power.’
He said the risk outlook is assessed as balanced. Inflation headline eased to a three-year low of 4.4% in August. The SARB forecasts inflation to be contained below the 4.5% midpoint to the end of the forecast horizon in 2026.
It also continues to see a dip in headline inflation, supported by a stronger exchange rate and lower oil prices. The implied starting point of the rand is R18.04 to the US dollar and an appreciation of nearly 2% relative to SARB’s July assumption.
This contributes to fuel price inflation, which helps keep headline inflation below 4% through the first half of 2026.
‘We will look through this near-term supply shock, focusing on the medium-term outlook. Lower headline inflation also reflects a better food-price outlook, with inflation for this category below the midpoint through 2025 and 2026,’ Kganyago said.
‘However, these benefits are partly offset by higher electricity prices with an expectation inflation rate more than double that of headline.’
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A Reuters poll of economists predicted the 25 basis point reduction as inflation reportedly slowed to 5.1% in June.
Between 6 and 14 August, 19 out of 26 surveyed economists predicted that the SARB would lower its main repo rate by 25 basis points, with many also forecasting another cut of the same amount in November, bringing the rate down to 7.75%.
Median forecasts indicate that two additional 25 basis point cuts are likely in the first quarter of 2025. Meetings are scheduled for January and March, followed by another in May, before the SARB pauses at 7.25% for the remainder of the year.
Only one further reduction to 7.00% is anticipated in 2026, according to a smaller sample of forecasters.
Meanwhile, the Bank of Namibia, which has previously diverged from South Africa’s monetary policy, cut its rates by 25 basis points to 7.5% in August.
As reported by Daily Maverick, Namibia’s monetary policy often follows South Africa’s due to its currency being pegged to the rand. However, deviations occur when inflation trends differ, as seen last April. This divergence means Namibia’s interest rate is now 75 basis points lower than South Africa’s.
Nonetheless, the MPC expects this gap to be temporary. ‘As the monetary policy easing cycle progresses, the margin between the repo rates of the Bank of Namibia and the South African Reserve Bank will again narrow,’ said Bank of Namibia Governor Johannes !Gawaxab.
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