South African Reserve Bank rate cut offers relief to consumers

SOUTH African consumers were given some reprieve this past week as the South African Reserve Bank (SARB) lowered interest rates in the country.

- ASHLEY LECHMAN

SARB Governor Governor Lesetja Kganyago announced that the central bank's Monetary Policy Committee (MPC) voted to cut the repurchase rate (repo rate) by 25 basis points (BPS).

This means the repo rate will decrease from 7.25% to 7%, effectively taking the prime lending rate in the country to 10.50% from 10.75%.

Kganyago said that the decision was unanimous among the MPC members.

“For policy, as we showed last time, lower inflation allows for lower interest rates. In our Quarterly Projection Model, for a 4.5% objective, rates bottom out around 7%.

“By contrast, the forecast for a 3% objective has roughly five more cuts, over the medium term, taking interest rates slightly below 6%.

The logic of the model is that interest rates need to fall as inflation eases, to prevent the inflation-adjusted rate, or real interest rate, from rising too much. Real rates are nonetheless temporarily higher for a 3% objective, and there is a modest growth sacrifice, which helps anchor expectations at lower levels,” the Lesetja said on Thursday.