Reserve Bank holds interest rates

The South African Reserve Bank (SARB) Monetary Policy Committee (MPC) has voted to hold rates, pausing the cutting cycle that started in September 2024.

This keeps the repo rate at 7.50% and the prime lending rate at 11.00%.

The vote was not unanimous, with four members voting to hold and two voting to cut by another 25 basis points.

According to Reserve Bank governor Lesetja Kganyago, the world economy is experiencing extreme levels of uncertainty, with the outlook unpredictable.

“Trade tensions have escalated, and longstanding geopolitical relationships are shifting abruptly. In these circumstances, the global economic outlook is unpredictable,” he said.

While local inflation appears to be contained—with average headline inflation now projected at 3.6% this year and moving up to 4.5% in 2026—the risk balance is to the upside.

Low inflation for goods is likely to be temporary, he said, while headline inflation has edged higher over the past few months.

Meanwhile, the risk for economic growth is to the downside.

GDP growth in South Africa in 2024 was 0.6%, lower than expected and slightly worse than 2023. The 2025 growth forecast has been revised downward to 1.7%.

These factors, and considering the global uncertainty, led to the decision to hold rates at 7.50%, with the implication being that there is room for another 25 basis point cut somewhere along the line.

“As before, the forecast sees rates stabilising at a neutral level of about 7.25%. This rate path from the Quarterly Projection Model remains a broad policy guide,” Kganyago said.

The MPC said its decisions will be made on a meeting-by-meeting basis, and will continue to be outlook dependent, responsive to data developments, and sensitive to the balance of risks to the forecast.

Uncertain times

The hold on rates was in line with most economists’ expectations, where experts saw the SARB taking a more cautious approach to monetary policy amid heightened uncertainty in global markets.

As echoed by the governor, global risks are viewed on the upside, driven predominantly by the threat of escalating trade wars by the United States.

“Given the uncertain global situation, the MPC spent time during this meeting exploring different external scenarios,” Kganyago said.

For one, the MPC considered a slowdown in the United States, with a weaker dollar and higher commodity prices, especially for gold. This implied some modest benefits for the South African economy.

On the other hand, the MPC explored scenarios built around changes in South Africa’s access to US markets—particularly if South Africa were to lose AGOA benefits.

Here, the committee factored in the weakening of exports and slightly lower growth.

“If that were compounded with tariffs on South African exports, the effects would be larger,” Kganyago said.

In the most severe scenario, the MPC considered a sentiment shock, with a weaker rand, higher domestic inflation and therefore a tighter policy stance.

In this case, growth would be lower by 0.7 percentage points (1.0% for 2025), with the exchange rate depreciation offsetting some of the tariff effects on exports.

“In a difficult global environment, it is vital to sustain domestic reforms that boost growth while preserving macroeconomic stability,” the governor said.

The hold on rates in South Africa follows a hold by the US Fed on Wednesday.

The Fed took a more neutral tone, but also indicated forward risk. Notably, US GDP growth is now expected to be weaker than projected in December—down to 1.7% from 2.0% year-on-year.

These projections have been revised downward due to US trade and fiscal policy tightening and some uncertainty tied to the Trump administration’s tariff and trade war.