THE South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) has lowered the repo rate by 25 basis points (bps), reducing it from 7.75 percent to 7.50 percent for the first quarter of 2025.
This adjustment brings the prime lending rate down from 11.25 percent to 11 percent, providing modest relief for borrowers.
The decision marks the third consecutive rate cut by the MPC following a peak in interest rates that lasted 14 years.
While there was anticipation of a larger 50 bps cut to further stimulate economic growth, Reserve Bank Governor Lesetja Kganyago revealed that the decision was not unanimous – four MPC members favoured the 25 bps reduction, while two preferred maintaining the current rate.
“The committee ultimately agreed 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,” Kganyago stated.
Kganyago highlighted the momentum in structural reforms under the Government of National Unity, aiming to elevate South Africa’s economic trajectory.
“The MPC wants to emphasise that decisions will be made on a meeting-by-meeting basis, with no forward guidance and no pre-commitment to any specific rate path,” he affirmed.
During the recent MPC meeting, the committee reviewed scenarios including a potential global trade war, which envisioned a universal increase of 10 percentage points in US tariffs.
This scenario suggested higher global inflation, increased interest rates, and heightened financial market risks.
In response, SARB’s model projected the rand depreciating to nearly R21 to the dollar, with domestic inflation rising to five percent and the policy rate peaking half a percentage point higher than baseline forecasts.
Conversely, an accelerated domestic reform scenario showed promising growth, projecting GDP expansion reaching 3 percent by 2027.
“This scenario also indicated lower inflation and interest rates, demonstrating how structural reforms can reduce the country risk premium and create more monetary policy space,” Kganyago noted.
Amid these complex global conditions, Kganyago stressed the importance of maintaining domestic reform momentum while safeguarding macroeconomic stability.
He pointed out that South Africa’s inflation outlook is complicated by global protectionist policies and factors such as the dollar-rand exchange rate, global oil prices and local food costs.