As expected, the Reserve Bank’s Monetary Policy Committee has decided to cut the repo rate by 25 basis points to 7.5%. This brings the prime lending rate to 11%. This is the benchmark rate that banks charge their customers for loans.
There was some relief for indebted consumers as the Reserve Bank cut the repo rate by 25 basis points. This will reduce their debt repayments slightly and increase their disposable income.
However, the rate cutting cycle is likely to be shallow. Risks to the inflation outlook are now seen to be on the upside.
The Central Bank expects inflation to remain in the lower half of the target range through the first half of this year.
It’s expected to rise to around 4.5% in the second half of the year.
SARB Governor Lesetja Kganyago says, “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 Reserve Bank says while inflation remains contained, the future is uncertain.
Senior Economist at Standard Bank Dr Elna Moolman says, “The Reserve Bank is clearly very concerned about the inflation forecast risks. They cautioned against assuming that they will at every MPC meeting be interest rate cuts, the message from the SARB is that further rate cuts will depend on how these inflation risks unfold. That said, the interest rate cuts that we’ve seen so far and the likely future monetary policy relief will provide some support for the economy for the year ahead, and we expect notably stronger growth this year.”
The Central Bank notes a challenging global environment as well as administered prices here at home as problematic.
Independent Economist Elize Kruger adds, “A lot of the global factors are very uncertain since Trump has taken office, almost every morning one has to look at what happened overnight in the US or there might be some surprise announcement about policy or tariffs so yes there is a lot of uncertainty.”
Experts say consumers are however still facing tough times, as the effects of the rate cut get cancelled out by other rising costs such as electricity and fuel.
COO of Debt Rescue, Annaline van der Poel says, “We’ve got to put it into the big picture and to say okay, we are gonna see a R100 saving on a bond or a vehicle. But looking at the current predictions, we are probably looking at a fuel price increase next week, so they are just canceling each other out at this point.”
This rate cut is, however, bad news for consumers with savings as it means the interest they receive on their deposits will be slightly less.
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