More interest rate relief for South Africans

The Reserve Bank’s Monetary Policy Committee (MPC) has decided to cut interest rates by 25 basis points, marking the second consecutive cut this year.

This brings the repo rate down to 7.75% and the prime lending rate to 11.25%.

The decision was unanimous, with all members of the committee voting in favour of a 25 basis point cut.

“The committee agreed that reducing the level of policy restrictiveness is still consistent with achieving the inflation target,” Reserve Bank Governor Lesetja Kganyago explained.

“The risk outlook, however, requires a cautious approach.”

This decision comes after Stats SA announced that South Africa’s inflation rate fell to a four-year low in October.

Consumer price inflation hit 2.8% in October 2024, down from 3.8% in September 2024.

This is below the Reserve Bank’s target range of 3% to 6%, which played a large role in its decision on Thursday.

The reduction in interest rates will bring much-needed relief for South Africans, who are still struggling with the country’s high cost of living.

However, while the decision is in line with many expert projections, some argued that a 25 basis point cut is not enough.

Prior to the decision, Old Mutual’s Johann Els urged the Reserve Bank to consider cutting rates by 50 basis points at this meeting.

Els said this move would have been justified by the economic conditions underlying it. He also critiqued the SARB’s traditionally cautious stance, suggesting that the current environment provides a unique opportunity for more assertive action. 

“Given the shortfall in inflation recently and projections that it will remain subdued, a more substantial rate cut would align with the economic signals we are observing,” he said.

He warned that the Reserve Bank’s cautious approach, while prudent, may not fully capitalise on the opportunity to stimulate economic growth at a crucial time. 

“The Reserve Bank’s approach, while typically geared towards mitigating risk, should also be responsive to clear economic indicators,” Els said. 

“We have a window to support economic recovery more robustly without jeopardizing our inflation targets.”

In the MPC’s announcement on Thursday, Kganyago said upside risks to the inflation outlook remain – with new risks emerging.

“In the near term, inflation appears well contained. However, the medium-term outlook is highly uncertain, with material upside risks,” he said.

“These include higher prices for food, electricity and water, as well as insurance premiums and wage settlements.”

The bank expects inflation to remain below 4% well into 2025, but it said higher inflation could occur in the second half of next year due to factors like Eskom’s proposed electricity tariff increase.

“Global interest rates could well shift higher again, and the recent rand depreciation demonstrates how rapidly changes in the global environment can affect South Africa,” he said.