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SARB Cuts Repo Rate to 7.5%, Prime Rate Drops to 11%

BREAKING NEWS
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Governor of South African Reserve Bank (SARB) Lesetja Kganyago at a press conference in Cape Town, 2024. (Photo credit: Reuters web)

On Thursday, the South African Reserve Bank announced a 25 basis point reduction in the repo rate, bringing it down to 7.5%. The decision, which takes effect from 31 January 2025, will see the prime interest rate in SA dropping to 11%, offering some relief to consumers and businesses.

The Monetary Policy Committee (MPC), led by Governor Lesetja Kganyago, made the decision after a detailed analysis of both domestic and international economic conditions. In a statement released by SARB, it is noted that while inflation in South Africa has been relatively well-contained, the global economic outlook remains uncertain, with risks tilted to the upside. The US Federal Reserve cannot lower interest rates much due to increasing inflation and trade issues. This has made the US dollar stronger, inflicting pressure for emerging markets like SA.

South Africa’s economy is projected to recover after a third-quarter contraction in 2024 due to poor agricultural production. Growth is expected to be supported by normalised farming output, household spending, and lower inflation. Headline inflation averaged 4.4% last year and dropped to 3% in December, driven by dropping food and fuel prices.

Because of these transitory factors, inflation is likely to remain in the bottom half of our target range through the first half of this year. But headline inflation should revert to around 4.5% thereafter, aided by core inflation which remains at or below the midpoint over the forecast horizon.

Kaganyago also revealed that four of the six MPC members supported the rate cut, while two preferred an unchanged stance. The decision cited a favorable inflation outlook and the need to support growth. He also emphasised that future rate decisions will remain date-driven.

The SARB acknowledged ongoing global risks, including volatility and trade tensions, while highlighting the importance of domestic reforms to maintain economic stability. The next policy review is set for 20 March 2025.

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