Reserve Bank makes first rate cut in years

The South African Reserve Bank (SARB) has cut interest rates for the first time in years, signifying the end of an almost four-year hiking cycle.

On Thursday, 19 September, the Monetary Policy Committee (MPC) decided to cut South Africa’s interest rates by 25 basis points.

From 20 September, the repo rate will be 8%, and the prime lending rate will be 11.50%.

The MPC’s decision follows positive inflation data released on Wednesday, which showed the CPI hit 4.4% in August – the lowest it has been since April 2021.

The SARB has been in a hiking cycle since November 2021, as it has attempted to bring South Africa high, sticky inflation within its target range of 3% to 6%.

This mission saw the SARB hike rates by a cumulative 475 basis points, bringing interest rates to a 15-year high.

However, its efforts have borne fruit, as inflation has been consistently trending downward for the past few months.

Despite this downward trajectory, the MPC has insisted that it would only cut rates once inflation has come down sustainably and is anchored around the midpoint of its target range, 4.5%.

This moment seems to have arrived, as all members of the MPC decided to cut the rate at its meeting this week.

This rate cut will bring much-needed relief to struggling South Africans – particularly those with car and home loans – who are under significant pressure from the country’s high cost of living.

The decision is also in line with most expert predictions, who expected the SARB to start its cutting cycle in September.

In his statement on Thursday, SARB Governor Lesetja Kganyago said the risks to inflation are assessed as balanced.

“In discussing the stance, MPC members considered an unchanged stance, a 25-basis point cut, and a 50-basis point cut,” he said.

“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%.

Below is an overview of the SARB’s hiking cycle, including today’s cut.