By 
It is a bitter-sweet moment for South Africans as they will get to save a few rands in their pockets as the South African Reserve Bank (SARB) announced a rate cut of 25 basis points on Thursday, 30 January 2025.
While the economy of the country did not do well in the third quarter of 2024, some recovery has been realised, though the primary sector is struggling to get back to pre-COVID levels, the secondary sector held the fort and grew the country’s economy, and is now bigger that it was five years ago.
According to the Governor of SARB, Lesetja Kganyago; the South African economy contracted in the third quarter. However, this was mostly due to an unusually large drop in agricultural production, which has limited implications for how we interpret the economy’s underlying growth trend.
He said in the fourth quarter, SARB anticipate a rebound, which was to be supported by more normal agricultural production, as well as strong household spending, given tailwinds including lower inflation and Two-Pot pension withdrawals. SARB expected the rebound in growth will close the output gap, leaving the economy to operate in line with its potential from the current quarter onwards.
“We expect potential growth to trend higher over the next few years. This gets growth to about 2% by 2027,” said Lesetja Kganyago.
“Moving to consumer prices, headline inflation averaged 4.4% last year, near the middle of our target range. Inflation slowed to 3% in December, having started the year above 5%. This was mainly due to favourable goods-price developments, including food inflation reaching 15-year lows, as well as lower fuel costs,” he said.
Citing a number of challenges in the domestic economy and the risk in inflation outlook, Kganyago said the Monetary Policy Committee (MPC) reached a conclusion to reduce the rate by 25 point basis.
“Against this backdrop, the MPC decided to reduce the policy rate by 25 basis points, with effect from 31 January 2025. Four members preferred this action, while two supported an unchanged stance.
The committee ultimately agreed that it was possible to reduce the degree of policy restrictiveness, making the stance somewhat more neutral. However, all members were concerned about the uncertain global outlook.
The forecast sees rates drifting slightly lower over the next few years, stabilising near 7.25%. But this rate path from the Quarterly Projection Model remains a broad policy guide. The MPC would like to emphasise that its decisions will be made on a meeting-by-meeting basis, with no forward guidance and no pre-commitment to any specific rate path. Such decisions will continue to be outlook dependent, responsive to data developments, and sensitive to the balance of risks to the forecast,” said Governor Kganyago.
