PRETORIA, Sept 19 (Askume) – South Africa’s central bank steered clear on Thursday after cutting interest rates for the first time in more than four years, saying that although inflation had fallen faster than expected, future risks still remained.
As expected by a Askume poll of economists , the South African Reserve Bank (SARB) cut its key lending rate to 8% from 8.25% , a day after data showed core inflation at 4.5%. Mid.
SARB governor Lesetza Kganyago said the monetary policy committee considered whether to keep the repo rate unchanged, reduce it by 25 basis points or reduce it by 50 basis points.
“In our analysis, we found that the level of 25 is a cautious stance,” Kganyago told a news conference. “You have to be cautious. Adversity is not part of our monetary policy toolkit.”
The decision came after the Federal Reserve cut interest rates by a larger-than-expected 50 basis points on Wednesday, making the country the latest emerging market to enter a monetary easing cycle after South Africa, Latin America and Central Europe.
Before Thursday’s rate cut, the South African Reserve Bank had kept the repo rate unchanged in seven consecutive policy meetings. Prior to that, it had raised rates 10 times in a row.
Sismakele Kobus, fixed income analyst at asset manager Ninety One, said he expected the central bank to cut the repo rate only slightly in future meetings.
Annual inflation has been close to or above the upper end of the central bank’s target range over the past three years, averaging 5.9% in 2023 and 6.9% in 2022.
However, there was a sharp decline in July and a further drop in August .
The SARB said on Thursday that it believes progress in reducing inflation will continue “with inflation remaining below the midpoint of 4.5% until the end of the forecast horizon in 2026”.
It said inflation expectations are gradually moving in the right direction, as shown by the recent quarterly survey.
“As long as core inflation remains stable at a low level, we expect further progress in rebalancing expectations towards the middle of the target range,” the bank said in a statement.
Economic growth is expected to improve in the final two quarters of the year, driven by a halt to blackouts by power company Eskom and a boost in consumer spending amid the government’s “two-pot” pension reforms .
The rand currency also benefited from confidence in the formation of a coalition government after May’s election, when the African National Congress lost its parliamentary majority, but was little changed after Thursday’s rate cut announcement.
Economists expect the South African Reserve Bank to cut interest rates by 25 basis points at its final monetary policy meeting of the year in November.
