The South African Reserve Bank’s Monetary Policy Committee (MPC) has lowered the repo rate by 25 basis points to 7.25%, with the prime lending rate now at 10.75%.

Announcing the decision on Thursday, Reserve Bank Governor Lesetja Kganyago said: “A combination of higher trade barriers and elevated uncertainty is likely to weaken the world economy. We have therefore lowered our global growth projections, from 3.1% to 2.5% for 2025.”

The majority of MPC members — five out of six — supported the cut, while one preferred a deeper 50 basis point reduction.

The rate cut follows the MPC’s decision in March to hold rates steady amid inflation concerns. However, April’s inflation print came in at 2.8%, slightly above

March’s 2.7% but still below the lower end of the SARB’s 3% to 6% target range. The continued moderation in inflation provided room for a cautious policy adjustment.

The committee noted the recent trend of lower inflation and took the view that a modest reduction in the policy rate was appropriate to support the economy.

“In the previous MPC statement, we warned of downside risks to our growth forecast. We have now trimmed our GDP projections and currently expect growth of 1.2% this year. The outlook for structural reforms remains positive, but there are also headwinds,” Kganyago said.

“We have revised down our inflation forecasts. This reflects the lower starting point, as well as a stronger exchange rate assumption and lower world oil prices. Our previous forecast also included VAT increases, which have since been cancelled.”

The governor said that the committee considered a scenario with a 3% inflation objective, which corresponds to the low end of our target range. “This showed a lower path for interest rates, with the policy rate falling below 6%, instead of staying around 7%, as in our baseline forecast,” he said.

“We will also consider scenarios with a 3% objective at future meetings,” Kganyago said.