Pretoria: The South African Reserve Bank’s Monetary Policy Committee (MPC) has made the decision to keep the repo rate steady at 7%, with the prime lending rate also remaining unchanged at 10.5%. This announcement came from SARB Governor Lesetja Kganyago following a meeting of the bank’s MPC.
According to South African Government News Agency, four members of the committee supported maintaining the current rates, while two advocated for a 25 basis point cut. Since September of the previous year, there has been a reduction in rates by 125 basis points. The MPC aims to observe the impact of these changes on the economy, as well as the evolution of expectations and the resolution of inflation risks.
The forecast predicts a gradual easing of rates as inflation moves towards the lower end of the 3%-6% target range. The committee stresses that stabilizing inflation at 3% suggests a lower long-term policy rate. However, the Quarterly Projection Model serves merely as a broad policy guide, and decisions will be made on a meeting-by-meeting basis, considering the economic outlook, data outcomes, and risk balance.
Governor Kganyago highlighted the GDP figures released by Statistics South Africa, which showed surprising growth with the highest quarterly rate in two years. The GDP increased by approximately 0.8% in the second quarter, prompting an upward revision of the annual growth forecast from 0.9% to 1.2%, despite a weaker export outlook due to higher tariffs.
He cautioned against overemphasizing one strong quarter, noting that modest output gains are expected in the coming years, supported by structural reforms. Some cyclical indicators, like credit extension, appear positive, but achieving a healthy growth rate will require significantly higher investment levels.
The MPC anticipates headline inflation, which was 3.3% in August, to rise in the coming months, peaking at around 4%. The forecast now includes higher electricity price inflation, nearly 8% instead of 6%, following a pricing correction by NERSA. This situation underscores the dysfunction in administered prices, which undermines purchasing power and weakens growth. The committee calls for sector-specific reforms to improve efficiency.
Inflation forecasts also account for increased food and services prices, partially offset by a stronger exchange rate assumption. Overall, headline inflation is expected to average 3.4% this year and 3.6% next year, returning to 3% by 2027.
Globally, Kganyago noted that the economy has shown resilience despite geopolitical challenges and trade disruptions. Growth remains stable, and market volatility has decreased. Recent policy rate cuts in the United States and the United Kingdom, along with a weaker dollar and rising commodity prices, are favorable conditions for emerging markets like South Africa.
However, adverse structural developments pose challenges, as long-term interest rates have risen in several major economies due to various pressures, including high debt levels and inflation risks.