South African Reserve Bank Cuts Repo Rate Amid Global Uncertainty
Pretoria, January 30– In a widely anticipated move, South Africa's central bank reduced its main lending rate by 25 basis points (bps) to 7.50% on Thursday. This marks the third consecutive rate cut, as the Monetary Policy Committee (MPC) made a split decision, with four members supporting the reduction and two preferring to maintain the existing rate.
While the South African Reserve Bank (SARB) acknowledged room to ease policy restrictions, it emphasized concerns over an unpredictable global economic landscape.
> “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 central bank noted in a statement.
Global Trade War Scenario Modeled
The SARB revealed it had modeled a scenario involving a universal 10% increase in U.S. tariffs and retaliatory measures from other countries. The findings painted a grim picture: a potential depreciation of the rand to nearly 21 against the U.S. dollar and inflation surging to 5%.
Following the announcement, the rand traded at 18.44 to the dollar.
Inflation and Economic Outlook
South Africa's inflation remains well within the SARB's target range of 3% to 6%, averaging 4.4% in 2024. Encouragingly, inflation expectations among analysts, business leaders, and trade unions have aligned with the bank's midpoint target.
However, the SARB faces domestic risks such as administered prices, including electricity and water tariffs. On Thursday, the National Energy Regulator awarded Eskom a 12.7% tariff increase, falling well below the utility's requested 36%.
Gradual Future Cuts Likely
Despite the rate cut, market analysts remain cautious about further reductions. Tertia Jacobs, an economist at Investec, highlighted the SARB's hawkish tone as a sign that future cuts are far from guaranteed.
> "A March rate cut at this point in time, whether or not inflation remains contained, is debatable," Jacobs noted.
As uncertainty looms over U.S. policy directions and global trade tensions, the SARB is likely to adopt a measured approach to future monetary policy decisions, balancing inflation risks with domestic economic stability.