Economists welcome repo rate cut, say it will go some way to spur economic growth

JOHANNESBURG - Economists said the decision to cut the repo rate by 25 basis points by the South African Reserve Bank’s monetary policy committee (MPC) would go some way to spurring growth in the country’s sluggish economy.

On Thursday, Reserve Bank Governor Lesetja Kganyago wrapped up the MPC’s July meeting with an announcement on adjustments to the policy rates.

During his signature address, Kganyago weighed the heightened global risks against the more favourable domestic conditions.

Thursday’s 25 basis point cut is the second consecutive one since the May meeting.

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• SARB takes revised inflation target down to 3%

• MPC opts to cut repo rate by 25 basis point to 7%

Economics professor at the North West University Business School, Raymond Parsons, said the move was the right decision for the economy in the present circumstances.

He said the easing in borrowing costs for business and consumers were positive for confidence levels at a time when the GDP continues to undershoot.

Economist at Sanlam Investments, Patrick Buthelezi, also weighs in.

"Locally, the economic growth forecast has been revised lower to about 0.9% this year but is expected to improve in the outer years, reaching 2% in 2027, benefiting from structural reforms."

But Kganyago said that uncertainty triggered by the disruptive US trade policy could not be ignored.

"The challenges of the global environment highlight the urgency of domestic reform for accelerating growth."

During the MPC announcement, the central bank also revised its inflation target down to 3% on the lower end of its inflation target band of 3% and 6%, an unexpected move that economists also welcomed.