Reserve bank slashes repo rate as growth slows, unemployment climbs

Sluggish growth prospects and a rise in unemployment have compelled the South African Reserve Bank (SARB) to cut the repo rate by 25 basis points to 7.25% effective today (Friday).

In announcing the cuts to the prime lending rate yesterday, SARB governor Lesetja Kganyago remarked that global economic conditions have been volatile, given the higher tariffs on imports into the United States – which were partly reversed.

“Given these conditions, we see global interest rates slightly lower this year. The US Federal Reserve has kept rates unchanged recently, but other major central banks such as the Bank of England and the European Central Bank have cut their policy rates,” said Kganyago.

Turning to South Africa, Kganyago noted there is no official data for growth in the first quarter yet.

However, indicators for sectors such as mining and manufacturing have been disappointing, and unemployment has risen.

“In our last meeting 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, rising to 1.8% by 2027. “The outlook for structural reforms remains positive, but there are also headwinds such as lower global growth,” said Kganyago.

The combination of higher trade barriers and elevated uncertainty is likely to weaken the world economy.

“We have, therefore, lowered our global growth projections. Against this backdrop, the Monetary Policy Committee [MPC] decided to reduce the policy rate,” he said.

Kganyago indicated that the MPC believes the 3% scenario is more attractive than the 4.5% baseline, and they would like to see inflation expectations move lower towards the bottom end of their target range.

They will also consider scenarios with a 3% objective at future meetings.

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