The South African Reserve Bank cut its main interest rate for the first time in more than four years on Thursday, as it said it saw inflation staying below the midpoint of its target range as far out as 2026.
The Sarb lowered the repo rate by 25 basis points to 8%, as predicted by economists polled by Reuters.
South Africa’s headline consumer inflation came in at 4.4% year-on-year in August, just below the 4.5% midpoint of the target range the central bank aims for.
The rate cut follows the US Federal Reserve’s decision on Wednesday to begin lowering rates and makes South Africa the latest emerging market to embark on an easing cycle after early movers in Latin America and Central Europe.
Prior to Thursday’s cut, the Sarb had kept the repo rate unchanged at seven policy meetings in a row. Before that it raised rates 10 times consecutively.
For much of the past three years, annual inflation has been near the top of the central bank’s target band or above it, averaging 5.9% in 2023 and 6.9% in 2022. But it dropped sharply in July and further in August.
The Sarb said on Thursday that it thought progress in bringing down inflation would be sustained, “with inflation contained below the 4.5% midpoint of our range through to the end of the forecast horizon in 2026”.
Right direction
On inflation expectations, the bank noted they were slowly moving in the right direction, as shown in a recent quarterly survey. “As long as headline inflation stabilises at lower levels, we anticipate further progress in re-anchoring expectations around the middle of our target range,” the Sarb said in a statement.
Economic growth is expected to improve in the final two quarters of this year, bolstered by Eskom suspending rolling power blackouts and higher consumer spending spurred by the government’s “two-pot” pension reform.
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The rand has also benefited from confidence linked to the formation of a coalition government following May’s election, when the ANC lost its majority in parliament. — Kopano Gumbi, Tannur Anders and Bhargav Acharya, (c) 2024 Reuters