The South African Reserve Bank has cut interest rates by 25 basis points, dropping the repo rate to 7.50%. <\/p>\n\n\n\n
The latest decision by the Monetary Policy Committee (MPC) was in line with expectations on the back of lower inflation in South Africa. <\/p>\n\n\n\n
Four members voted for the cut, while two voted for rates to remain unchanged.<\/p>\n\n\n\n
The latest inflation data from South Africa stood at 3.0% in December, well below the SARB’s midpoint target of 4.5%. <\/p>\n\n\n\n
The SARB believes that inflation should remain below the 4.5% target for the first half of the year. <\/p>\n\n\n\n
However, headline inflation should revert to around 4.5% after the period as core inflation remains at its normal target. <\/p>\n\n\n\n
Inflation expectations also align with the SARB’s target. However, the risks to the SARB’s target remain on the upside amidst global developments.<\/p>\n\n\n\n
Looking at other indicators, GDP contracted in Q3 on the back of extremely weak agricultural production. <\/p>\n\n\n\n
However, the SARB expects a rebound in Q4 amidst a recovery in agricultural production and higher spending due to two-pot withdrawals.<\/p>\n\n\n\n
This should see the output gap, leaving the economy to perform in line with its potential from the quarter onwards. <\/p>\n\n\n\n
The SARB also sees GDP growth reach 2.0% by 2027 despite the disappointing mining and manufacturing sectors, which are still below Covid-19 levels. <\/p>\n\n\n\n
As growth picks up, the SARB expects improvements in the primary and secondary sectors, as well as a pick-up in investment. <\/p>\n\n\n\n
The outlook of US Monetary Policy rate cuts looks limited in South Africa amidst rising tariffs. <\/p>\n\n\n\n
Reserve Bank Governor Lesetja Kganyago added that the US Fed may even increase rates to tackle inflation. <\/p>\n\n\n\n
Europe also sees weak economic growth expectations and elevated inflation targets, while China’s economy has been decelerating, which is marked by low interest rates and deflation.<\/p>\n\n\n\n
The US dollar has thus seen strength, reaching a possible record high.<\/p>\n\n\n\n
The MPC also looked at the potential consequences of a global trade war, with US President Donald Trump threatening to increase tariffs across the globe. <\/p>\n\n\n\n
The model used saw a 10% universal increase in US tariffs, with retaliatory measures by other countries.<\/p>\n\n\n\n
The scenario showed higher inflation and interest rates globally and greater risk aversion in financial markets. <\/p>\n\n\n\n
The scenario would see the rand depreciate to R21 to the dollar while domestic inflation hit 5.0%.<\/p>\n\n\n\n
On a more positive note, the SARB also looked at a scenario where major structural reforms are introduced in the country. <\/p>\n\n\n\n
This would see growth increase from 2.0% to 3.0% in 2027. This would also result in lower inflation and lower interest rates. <\/p>\n\n\n\n
The reforms would lower South Africa’s risk premium and more monetary policy space. <\/p>\n\n\n\n
Kganyago said that amidst the uncertain global environment, it remains essential for South Africa to maintain the domestic reform agenda. <\/p>\n\n\n\n
<\/p>\n","protected":false},"excerpt":{"rendered":"
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