Repo Rate Drops By 25 Basis Points To 8%, First Reduction Since 2020

The South African Reserve Bank's Monetary Policy Committee (MPC) reduced the repo rate by 0.25%, lowering it to 8%, marking the first rate cut since 2020, which means the prime lending rate is now at 11.5%.

Reserve Bank Governor Lesetja Kganyago announced the decision after Thursday's committee meeting.

The repo rate cut comes after an announcement from Statistics South Africa that inflation has once again dipped to 4.4% – the lowest it has been since April 2021.

"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," Kganyago said, SA News reported.

He added, "The forecast sees rates moving towards neutral next year, stabilizing slightly above 7%. As before, the rate path from the Quarterly Projection Model remains a broad policy guide, changing from meeting to meeting."

Kganyago noted that inflation eased to 4.4% in August, marking a three-year low and nearing the middle of the target range. The Reserve Bank expects inflation to remain below the 4.5% midpoint of the range until at least 2026.

The governor further mentioned that, in the short term, they expect a decrease in headline inflation, thanks to a stronger exchange rate and lower oil prices.

The current exchange rate is R18.04 to the US dollar, which is nearly a 2% improvement compared to their July estimate, helping lower fuel prices, and keeping inflation below 4% in the first half of next year. He noted that they will focus on the medium-term outlook despite this temporary change.

He emphasized the importance of sustaining the macroeconomic efforts in South Africa including implementing structural reforms to enhance growth and taking steps to strengthen fiscal and monetary stability.

"The MPC's main contribution is to deliver low and stable inflation, with well-anchored inflation expectations," Kganyago said, noting that the committee also recommends additional measures to improve economic conditions.

"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.