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Amid a sluggish domestic economy and global policy uncertainty, the South African Reserve Bank (SARB) Monetary Policy Committee (MPC) has unanimously agreed to cut the repo rate by 25 basis points to 7% effective from 1 August 2025.
The Governor of SARB Lesetja Kganyago announced on Thursday afternoon that the MPC has cut the repo rate, while this may be music to the ears of South Africans; the country’s economy remains weak with rising food prices and a decrease consumer confidence in the first half of the year.
Though there are some positives in the economy of the country, the economy is however growing at a tortoise pace. Kganyago said in May this year, SARB warned that economic activity for the first quarter of 2025 was looking weak. He said Statistics South Africa has since reported that growth was just 0.1%, in line with SARB’s expectations. However, there was also a downward revision to earlier GDP data.
“Along with an assumption of higher US tariffs on South Africa, this has caused us to mark down our 2025 growth forecast. That said, the recent data flow has been positive, suggesting that the economy picked up in the second quarter of the year.
The economy’s underlying growth trend remains low, mainly due to persistent supply-side problems, for instance in logistics. Higher levels of uncertainty also seem to have affected output, with business and consumer confidence deteriorating in the first half of the year. However, we still expect modestly higher growth in the coming years, supported by on-going structural reforms,” said Governor Lesetja Kganyago.
In the period under review, the Rand also strengthened pushing inflation down, a welcomed positive in the country’s economy. Kganyago said the June CPI print showed headline inflation at 3% and core at 2.9%, still at the bottom of SARB’s target range.
According to the Governor, though inflation is on a downward trajectory, food inflation has risen, mainly due to meat prices. Fuel prices are also falling more slowly now, compared to the recent past. Kganyago said SARB therefore expects headline inflation to rise over the next few months, averaging 3.3% for the year, in line with their earlier forecasts. Prices then stabilise around the target objective over the rest of the forecast period.
“Against this backdrop, the MPC decided to reduce the policy rate by 25 basis points, to 7%, with effect from the 1st of August. The decision was unanimous.
At our previous meeting we considered a scenario with a 3% inflation objective. We did this based on analysis that our existing 3-6% target is too high and too wide, and should be reformed. With actual inflation close to 3%, we wanted to highlight the opportunity to achieve permanently lower inflation at minimal cost,” announced the Governor.
