Reserve Bank serves up its first repo rate cut since 2020

Overall, global conditions are more favourable but there are still risks

Reserve Bank governor Lesetja Kganyago announced on Thursday afternoon that the central bank’s monetary policy committee (MPC) had opted for a repo rate cut of 25 basis points to 8%.

The move follows Stats SA’s announcement on Wednesday that annual consumer price inflation declined to the lowest inflation print since April 2021, to 4.4% in August from 4.6% in July.

It also follows news on Wednesday evening that US Federal Reserve governor Jerome Powell had announced a rates cut in the world’s largest economy of half a percentage point (50 basis points).

Briefing reporters in Pretoria, Kganyago said while the decision to cut was unanimous, the MPC had also considered a deeper cut as well as the option of keeping the repo rate on hold, but ultimately settled on a cut of 25 basis points.

“MPC members considered an unchanged stance, a 25 basis points cut and a 50 basis points 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.”

Kganyago said despite signs of improved data in the global outlook, central banks are still moving carefully and global interest rates remain relatively high, though economic activity in major economies has been resilient even as inflation eases.

“The case for caution is further bolstered by the difficult and unpredictable geopolitical environment, with risks of inflationary shocks through trade restrictions and supply chain disruptions, among other factors. Overall, global conditions have become more favourable but there are still risks.”

The governor acknowledged the improved inflation data announced by Stats SA on Wednesday and said the rally of the rand against the dollar and other indicators showed signs that the receding of inflation could be sustained through the forecast period.

“Headline [inflation] eased to 4.4%, a three-year low and close to the middle of our target range. Our forecasts suggests this progress will be sustained, with inflation contained before the 4.5% midpoint of our range through to the end of our forecast horizon in 2026.

“In the near term, we continue to see a dip in headline inflation supported by the stronger exchange rate and lower oil prices. The implied starting point of the rand is R18.04 to the US dollar, an appreciation of nearly 2% relative to our July assumption.

“This contributes to fuel price inflation, which helps keep headline inflation below 4% through the first half of next year.”

He warned that while lower headline inflation reflected a better food price outlook through to 2026, these benefits were partly offset by high electricity prices.

“As long as headline inflation stabilises at lower levels, we anticipate further progress in re-anchoring expectations around the middle of our target range. The risks to inflation are assessed as balanced,” said Kganyago.

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