As anticipated, the Monetary Policy Committee (MPC) kept interest rates unchanged on Thursday.

Four members of the MPC supported maintaining current rates, while two favoured a reduction of 25 basis points.

The central bank, however, lowered its inflation forecast for the year to 3.6%, largely due to a more favourable outlook on fuel prices, which are expected to decrease again in April.

This reduction is expected to help offset the inflationary pressure caused by a proposed 0.5 percentage point increase in VAT in the revised budget. The central bank estimates that this VAT hike will contribute 0.2 percentage points to overall inflation.

In January, the repo rate was reduced by 25 basis points to 7.50%, while the prime rate dropped to 11.00%, down from 11.75% in early September last year.

Governor Kganyago stated that the global economy is currently in a highly uncertain state, with an unpredictable outlook.

“For several quarters, we have enjoyed rising confidence in South Africa, with a smaller country risk premium and lower bond yields,” he said.

“However, the global economy is not on a stable footing and there are also domestic uncertainties which put these favourable trends at risk. This calls for a cautious policy approach.”

“Trade tensions have escalated, and longstanding geopolitical relationships are shifting abruptly. In these circumstances, the global economic outlook is unpredictable,” he said.

South Africa’s GDP growth for 2024 is forecasted at 0.6%, lower than expected and slightly worse than in 2023. The 2025 growth forecast has been revised down to 1.7%.

“In such a challenging global environment, it is crucial to sustain domestic reforms that promote growth while maintaining macroeconomic stability,” the governor added.