Some economists believe SARB’s MPC has less wiggle room for further repo rate cuts in 2025

JOHANNESBURG - Some economists believe the South African Reserve Bank (SARB)’s Monetary Policy Committee (MPC) has less wiggle room to further cut the repo rate in the last two meetings of 2025 after Thursday’s decision.

The MPC cut the central bank’s benchmark policy rate by 25 basis points in the July meeting to 7%, the lowest rate since the end of 2022.

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The prime lending rate for commercial banks now sits at 10.5%.

The 25-basis-point cut in the latest meeting wasn’t unexpected. What did come as a surprise was the central bank’s unilateral decision to move its inflation target to the lower end of its 3% to 6% target band.

"We have an opportunity now to lock in low inflation and clear the way for sustainably lower interest rates. Additional measures that would improve economic conditions include reaching a prudent public debt level, strengthening network industries, lowering administered price inflation, and keeping real wage growth in line with productivity gains," said SARB Governor Lesetja Kganyago.

The lower inflation is likely to reduce the average interest rate over time, bringing the cost of borrowing down.

Economics professor at the North West University Business School, Raymond Parsons, said whether there can be further interest rate cuts this year is now highly uncertain.

Economists at Nedbank said future rate moves will, in addition to the usual economic developments, be influenced by progress in maintaining inflation around 3%, where the 4.5% inflation target scenario saw no room for further cuts in this cycle.