SARB cuts repo rate by 25bps, prime lending rate now 11.25%
The Monetary Policy Committee (MPC) lowered the interest rate by 25 basis points. The prime lending rate therefore changes to 11.25%, and the repo rate drops to 7.75%.
Governor of the South African Reserve Bank, Lesetja Kganyago, said in his announcement today that since their previous meeting, the global macroeconomic context has become more challenging. "The dollar has appreciated against most currencies, including the rand. Longer-term interest rates have risen, in the United States and across the globe. Short-term rate expectations have likewise shifted up".
Kganyago said in general, monetary policy in major economies remains restrictive, and headline inflation has slowed. While this has provided some room for major central banks to ease rates further, over the past two months, new inflation pressures and heightened uncertainty suggest diminished policy space. With underlying inflation still above target, in several economies, there are risks of policy reversals.
Turning to South Africa, he said they continue to see a growth recovery taking hold, after a weak economic performance through 2023 and the first half of 2024.
"In the near term, we expect output to benefit from a variety of tailwinds, including lower inflation, higher disposable income, and extra spending from pension withdrawals via the new Two-Pot system.
"It is unclear how much this will boost the third-quarter growth numbers, which are due in a few weeks. The data flow has been mixed lately, with some indicators disappointing, while others have been positive. For instance, recent manufacturing data was subdued, but mining was stronger. Encouragingly, the most recent labour force survey showed relatively large and broad-based job gains, and lower unemployment.
"Over the medium term, we still expect a sustained improvement in growth as reforms take effect. Our forecast now extends out to 2027, and we see growth reaching 2% in that year".
The risks to the growth outlook are assessed to be balanced.
Given mixed data outcomes, it is possible that near-term growth could fall short of current projections. At the same time, growth could be higher from next year, given ongoing reforms. These include structural reforms, especially in the network sectors, such as electricity and transport. Furthermore, the recent positive outlook on South Africa’s credit rating, from Standard & Poor’s, points to an improving country risk premium. These factors suggest upside risks to the longer-term growth forecast.
Moving to consumer prices, headline inflation has dipped below our target range, reaching 2.8% in October. Goods prices have slowed more than those for services, which mainly reflects the benefits of a stronger exchange rate and a lower oil price, relative to last year. These temporary supply shocks are likely to keep inflation below 4% until mid-2025.
Thereafter, we see inflation modestly higher relative to our September projections, reaching 4.6% from late 2025, rather than 4.4%. This is primarily because of a higher electricity price assumption. At the same time, core inflation is marginally lower for this year and next year, which reflects recent data outcomes. We continue to see headline inflation stabilising near our midpoint objective over the forecast horizon.
He says that in this context, they anticipate inflation expectations will moderate further. These expectations have been quite backward-looking, with higher past inflation projected well into the future. Survey expectations remain above our midpoint objective. They expect that our policy stance, and the experience of lower inflation, will anchor expectations more firmly at lower levels.
The risks to the inflation outlook are assessed as balanced.
In the near term, inflation appears well contained. However, the medium-term outlook is highly uncertain, with material upside risks. These include higher prices for food, electricity and water, as well as insurance premiums and wage settlements.
Against this backdrop, the MPC decided to reduce the policy rate by 25 basis points, to 7.75%, with effect from 22 November 2024. The decision was unanimous.
Homeowners: How the interest rate cut affects your financial planning:
With the interest rate drop of 0.25 points, it’s crucial to understand how this adjustment will impact your finances for better financial planning in the future.
To help you navigate this change, Property24 has introduced an Additional Once-Off Payment feature in the additional payments calculator tool, allowing you to understand how the rate cut can benefit your financial circumstances.
To access this feature, simply navigate to the Property24 Additional Payments Calculator under the Calculators tab.
This additional feature is designed to help you estimate the financial impact of the rate change on your existing bond. By entering your current bond debt amount, current bond repayment, additional monthly payment, once-off payment, and interest rate details, you can assess how your payments and overall costs are affected.
Click here to access the Additional Once-Off Payment feature.
Original Article: https://www.property24.com/articles/sarb-cuts-repo-rate-by-25bps-prime-lending-rate-now-1125/32455
