Interest Rates cut by 25 Basis Points in South Africa
As expected, the SA Reserve Bank’s monetary policy committee (MPC) lowered interest rates by 25 basis points. This change came after a large cut of 50 basis points in the US overnight.
After the cut, South Africa's repo rate is now 8%. The prime rate is 11.50%.
The MPC’s decision means the monthly payment on a new R2-million home loan will be nearly R350 cheaper. Since the MPC began raising rates in 2021, payments on a R2-million bond increased by R7,000 each month.
SARB Governor Lesetja Kganyago said inflation should stay low. He mentioned that the MPC expects the repo rate to be "slightly above 7%" next year.
In August, consumer inflation fell below the SA Reserve Bank's target of 4.5%. The MPC wanted inflation to be closer to 4.5% before lowering rates. Inflation has decreased mainly because of lower fuel prices. These cuts are due to a drop in oil prices and a strong rand. More relief is coming, with big diesel and petrol price cuts expected in early October.
The MPC now expects inflation to be 4.6% for 2024, down from 4.9%. For 2025, the forecast is 4.0%, reduced from 4.4%.
Kganyago said a "soft landing" is more likely after the recent inflation surge, but it's not certain. He warned that electricity prices or wages could rise significantly. He also mentioned that oil prices and food inflation are still uncertain. He warned about possible larger electricity price or wage increases. He also noted that oil prices and food inflation remain uncertain.
The MPC members thought about cutting rates by 50 basis points or not cutting them at all. However, they "ultimately reached consensus" on a cut of 25 basis points, Kganyago said.
Interest rates, which persist at their highest in 15 years despite the recent reduction, have been burdening an economy already struggling with load shedding and other issues. The latest GDP figures for the second quarter revealed that the South African economy has only grown by 0.3% compared to last year.
Lower interest rates should reduce financial stress and give consumers more money to spend. Lower interest rates should ease financial stress and give consumers extra money to spend. A more stable electricity supply will also help. Additionally, the two-pot retirement system is expected to provide a R30 billion boost. Together, these factors may help kickstart the economy.
Since early September, pension members can withdraw from the "savings" part of their retirement funds. They can take out up to R30,000, depending on how much they have. This change is expected to greatly increase retail spending.
On Thursday, the Reserve Bank announced it has raised its growth forecast for next year to 1.6%. This is up from 1.5%. For 2025, the growth expectation is now 1.8%, increased from 1.7%.
The next MPC meeting will be on November 21. Another cut is expected at this meeting.
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