By Consumers will have a few extra hundred bucks in their pockets following the announcement by the South African Reserve Bank (SARB) to lower the repo rate by 25 basis points effective from today, 20 September 2024.
This is a much welcomed announcement as the economy, both globally and locally has been a bit hostile towards the purse. According to the Governor of SARB Lesetja Kganyago, the global economy is becoming favourable with easing of inflation and nearing targets.
Central Banks in developed economies including the US, Europe and England have lowered their rates. The US dollar has also cooled off in recent months, providing some respite for other currencies, including the rand.
“Despite these welcome developments, central banks are moving carefully, and policy stances remain relatively tight. Economic activity in major economies has been resilient, even as inflation eases. Underlying measures of inflation have also fallen less than headline, primarily because of elevated housing inflation, and robust wage growth.
Overall, global conditions have become more favourable, but there are still risks. A ‘soft landing’ is looking more likely, after the worst inflation surge in a generation, but it is not inevitable. The financial market volatility of early August was a reminder of the fragilities and uncertainties in the system,” said Kganyago.
Kganyago said the South African economy performed below expectation in the first half of the year, however, the economy is expected to perform better in the second half of the year reaching growth of 0.6% as a result of consistent reliable power supply that inspires confidence in the country’s economy.
“We also expect extra spending given withdrawals from the new Two-Pot retirement system, although some of these funds will be absorbed by debt repayments and tax.
For the medium term, our growth projections have once again edged higher. The upgraded forecast is premised on better-functioning network industries, especially electricity, alongside broader reform momentum. Because potential growth is higher, in the forecast, supply and demand remain broadly balanced, even as growth accelerates. The pace of growth nonetheless remains below longer-run averages, of around 2%,” said Lesetja Kganyago.
Governor Lesetja Kganyago said headline inflation eased to 4.4% in August, a 3-year low, and close to the middle of our target range. He said SARB’s forecast suggests that the progress will be sustained, with inflation contained below the 4.5% midpoint of their range through to the end of the forecast horizon, in 2026.
Kganyago announced that the MPC decided to reduce the policy rate by 25 basis points, to 8% per annum, with effect from 20 September.
“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,” he announced.
