The South African Reserve Bank (SARB) has reduced the interest rate by 25 basis points, bringing the repo rate to 7.50%.
This decision from the Monetary Policy Committee (MPC) aligns with expectations, as the country’s inflation continues to ease.
Four members of the MPC voted in favour of the rate cut, while two opted to keep rates unchanged.
Inflation in South Africa stood at 3.0% in December, well below the SARB’s midpoint target of 4.5%.
The central bank expects inflation to remain under 4.5% in the first half of the year, although it may rise to around this level later in the year, with core inflation staying within the target range.
Reserve Bank Governor Lesetja Kganyago said inflation appears well contained in the near term.
“However, the medium-term outlook is more uncertain than usual, with material risks from the external environment. Domestic factors such as administered prices are also problematic.”
Inflation expectations continue to align with the SARB’s target, though risks to the inflation outlook remain on the upside due to global factors.
Looking ahead, the SARB forecasts GDP growth of 2.0% by 2027, despite ongoing challenges in the mining and manufacturing sectors, which are still struggling to return to pre-COVID-19 levels.
As growth picks up, the central bank expects improvements in both the primary and secondary sectors, alongside increased investment.
With inflation currently at the lower end of the SARB’s target range, South African consumers can expect further rate cuts in the near term. This would bring the total reduction in interest rates to 0.75% since September 2024.
For consumers, the immediate effect of this cut would be a reduction in monthly debt repayments, including home loans, car loans, and credit card payments.
For example, a 0.25% rate cut would lower the monthly repayment on a R1 million home loan by R515.19.
Commenting on the broader economic sentiment, Herschel Jawitz, CEO of Jawitz Properties, noted that the shift in sentiment since the May 2024 elections, combined with improvements in power supply and lower inflation, has positively impacted the residential property market.
Areas like Gauteng, which had experienced oversupply and stagnant prices, are seeing increased buyer demand. While it may take time for this to result in price growth, further interest rate cuts are expected to fuel positive momentum in the market.