The South African Reserve Bank’s Monetary Policy Committee (MPC) has decided to cut the repo rate by 25 basis points, bringing it down to 8%.

The cut – the first one since 2020 – moves the prime lending rate to 11.50%.

The cut was announced by Reserve Bank Governor Lesetja Kganyago following a meeting of the bank’s MPC.

‘In discussing the stance, MPC members considered an unchanged stance, a 25-basis point cut, and a 50-basis point cut. The MPC ultimately reached consensus on 25 basis points, agreeing that a less restrictive stance was consistent with sustainably lower inflation over the medium term.

‘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. Decisions of the MPC will continue to be data dependent, and sensitive to the balance of risks to the outlook,’ Kganyago said on Thursday.

The cut comes on the heels of an announcement by Statist
ics South Africa that inflation has once again dipped to 4.4% – the lowest it has been since April 2021.

Kganyago said the bank forecasts that this will be sustained.

‘Moving to inflation, headline eased to 4.4% in August, a three-year low, and close to the middle of our target range. Our forecast suggests this progress will be sustained, with inflation contained below the 4.5% midpoint of our range through to the end of the forecast horizon, in 2026.

‘In the near term, we continue to see a dip in headline inflation, supported by the stronger exchange rate and lower oil prices. The implied starting point of the rand is R18.04 to the US dollar, an appreciation of nearly 2% relative to our July assumption.

“This contributes to fuel price deflation, which helps keep headline below 4% through the first half of next year. As usual, we will look through this near-term supply shock, focusing on the medium-term outlook,’ Kganyago explained.

The Governor warned that it is crucial for South Africa to sustain the m
omentum of reforms, ‘given a potentially adverse external environment’.

‘This entails both structural reforms to support growth capacity, and macroeconomic efforts to rebuild fiscal and monetary buffers.

‘The MPC’s main contribution is to deliver low and stable inflation, with well-anchored inflation expectations.

‘We also recommend additional measures that would improve economic conditions. These include reaching a prudent public debt level, further repairing and strengthening network industries, lowering administered price inflation, and keeping real wage growth in line with productivity gains,’ Kganyago concluded.

Source: South African Government News Agency