JOHANNESBURG, Jan. 30 (Xinhua) -- The South African Reserve Bank (SARB), the country's central bank, on Thursday announced its decision to reduce the repurchase rate by 25 basis points, bringing the repo rate to 7.5 percent and the prime lending rate to 11 percent.
SARB Governor Lesetja Kganyago, speaking during the question-and-answer session at a media briefing, said that while inflation was at 3 percent and remained within the central bank's 3 to 6 percent target range, the global economy remains uncertain, with risks abounding due to several factors.
"In particular, the outlook for monetary policy in the United States has changed. The space for rate cuts by the Federal Reserve now looks limited, with core inflation still elevated, and new inflation risks emerging such as rising trade tariffs," he said.
Kganyago revealed that the SARB's Monetary Policy Committee (MPC) spent some time discussing a trade war scenario and its likely impact.
"This featured a universal increase of 10 percentage points in U.S. tariffs, with retaliatory measures by other countries. The scenario showed higher inflation and interest rates globally, as well as greater risk aversion in financial markets," he said. "In response, our model projected the rand depreciating to nearly 21 rand to the dollar, with domestic inflation reaching 5 percent and the policy rate half a percentage point higher, at its peak, relative to the baseline forecasts."
On the local economic front, Kganyago said that, despite the gross domestic product contracting in the third quarter due to the agricultural sector's poor performance, a rebound in growth was projected for the fourth quarter. According to him, the SARB was expecting the potential growth of South Africa's economy to reach about 2 percent by 2027.
"Inflation expectations have also now largely aligned with our midpoint objective, according to the most recent survey. The risks to the inflation outlook are assessed to the upside," he said.
"Against this backdrop, the MPC decided to reduce the policy rate by 25 basis points, with effect from Jan. 31, 2025. Four members preferred this action, while two supported an unchanged stance," said Kganyago. "The forecast sees rates drifting slightly lower over the next few years, stabilizing near 7.25 percent."
The governor stressed that the MPC remains vigilant, and ready to recalibrate policy as needed. "Additional measures that would improve economic conditions include reaching a prudent public debt level, further repairing and strengthening network industries, lowering administered price inflation, and keeping real wage growth in line with productivity gains," said Kganyago, adding South Africa's economic growth could get to 3 percent in 2027 through "accelerated structural reforms" domestically.
