South African Reserve Bank (SARB) Governor Lesetja Kganyago said that interest rates in the country will be cut by 25 basis points (BPS) on Thursday.
This comes after the central bank’s Monetary Policy Committee (MPC) voted for a 25BPS cut today, which translates to a 0.25% cut in the repurchase rate (repo rate).
This means that the repo rate will come down from 7.75%% to 7.50% while the prime lending rate decreases from 11.25% to 11%.
Ahead of the governor’s announcement, it was widely predicted that rates would be cut at this month’s MPC meeting, however, there was some slight uncertainty on Thursday morning when the US Federal Reserve decided to keep their rates unchanged.
Usually, the SARB follows what the Fed decides, but with inflation in the country remaining in the bank’s target range, they were able to make the cut.
The U.S. central bank held interest rates steady on Wednesday and its Chair Jerome Powell said the Fed would wait for signs of further progress on inflation, or of labour market weakness before it would cut interest rates further.
Reuters reported earlier in the day that the Fed's rate decision on Wednesday was widely anticipated, following its rate cuts in 2024, which reduced the benchmark rate by a full percentage point.
Kganyago said durring his address, “At our last meeting, we warned about a more challenging global environment. Some of the risks we saw then have since materialised. In particular, the outlook for monetary policy in the United States has changed. The space for rate cuts by the Federal Reserve now looks limited, with core inflation still elevated, and new inflation risks emerging such as rising trade tariffs. It is even possible that US rates could go up again, to stabilise inflation.”
“South Africa’s economy contracted in the third quarter. This was mostly due to an unusually large drop in agricultural production, which has limited implications for how we interpret the economy’s underlying growth trend.
For the fourth quarter, we anticipate a rebound. This will be supported by more normal agricultural production, as well as strong household spending, given tailwinds including lower inflation and Two-Pot pension withdrawals,“ the governor said while speaking about the economy.
“We think this expected rebound in growth will close the output gap, leaving the economy to operate in line with its potential from the current quarter onwards. We expect potential growth to trend higher over the next few years. This gets growth to about 2% by 2027,” he added.
“Headline inflation averaged 4.4% last year, near the middle of our target range. Inflation slowed to 3% in December, having started the year above 5%. This was mainly due to favourable goods-price developments, including food inflation reaching 15-year lows, as well as lower fuel costs,” the governor said.
Neil Roets, CEO of Debt Rescue, told Business Report that the announcement of a 25 basis point interest rate cut is a step in the right direction, but it falls far short of what is needed to provide meaningful relief for struggling South Africans.
“The slow pace of rate reductions is prolonging financial distress for millions who are already trapped in a relentless cycle of debt, with little hope of escaping.”
“For years, high interest rates have made it increasingly difficult for people to keep up with their loan repayments. Nearly 10% of disposable income is being swallowed by debt obligations, and mortgage defaults have surged as a result. Many consumers are forced to rely on additional credit just to cover basic living expenses, creating a dangerous and unsustainable financial situation. While any interest rate reduction is a welcome move, a single 25 basis point cut is simply not enough to make a real difference for the average household,“ Roets said.
He further said that the expected steep increase in fuel prices for February is yet another crushing blow for South African consumers, effectively cancelling out any potential savings from recent interest rate cuts.
“While slightly lowered interest rates offer some relief on debt repayments, rising petrol and diesel costs will quickly erode those benefits, leaving consumers with higher living expenses and no real financial respite,” Roets further said.
“The impact of a fuel price hike is twofold: it directly affects consumers who rely on transport, and it indirectly pushes up the cost of goods and services. Motorists and commuters will immediately feel the strain as transport costs rise, making daily travel and public transport more expensive. With many South Africans already struggling to afford the impact of higher transport costs, this increase will put even more pressure on household budgets,” he added.
BUSINESS REPORT