Pretoria: The South African Reserve Bank's Monetary Policy Committee (MPC) has decided to reduce the repo rate by 25 basis points to 7%, with effect from the 1 August 2025. Addressing a media briefing on the MPC's decision on the repo rate, SARB Governor Lesetja Kganyago stated that the decision to reduce the policy rate was unanimous.
According to South African Government News Agency, the rand has strengthened, and inflation expectations have moderated. The June Consumer Price Index (CPI) showed headline inflation at 3% and core at 2.9%, both at the bottom of the target range. Governor Kganyago mentioned that while food inflation has risen due to meat prices, fuel prices are decreasing more slowly. Headline inflation is expected to rise over the coming months, averaging 3.3% for the year, which aligns with earlier forecasts. Prices are anticipated to stabilize around the target objective over the rest of the forecast period, with risks to this outlook appearing balanced.
The first quarter of 2025 saw weak economic activity, but recent data suggests an economic pickup in the second quarter. Statistics South Africa reported a growth of just 0.1%, which was in line with expectations, although there was a downward revision to earlier GDP data. This, coupled with assumptions of higher United States tariffs on South Africa, has led to a reduced growth forecast for 2025. The underlying growth trend remains low, primarily due to persistent supply-side issues, such as those in logistics. Business and consumer confidence have deteriorated, yet modestly higher growth is expected in the coming years, supported by ongoing structural reforms.
Over recent months, the prospect of a lower inflation target has strengthened the rand and reduced long-term borrowing costs. Governor Kganyago emphasized the importance of maintaining this progress and minimizing uncertainty about monetary policy's long-term objectives. The MPC now prefers inflation to settle at 3%, aiming for the bottom of the target range of 3-6%. The recent moderation in inflation expectations is welcomed, with hopes for further declines to expand policy space and enhance the framework's resilience to shocks. The South African Reserve Bank will use forecasts with a 3% inflation anchor at future meetings and will continue collaborating with the National Treasury to achieve permanently low inflation through target reform.