South Africa Lowers Interest Rates for First Time Since 2020
South Africa’s central bank cut interest rates for the first time in four years and signaled a more optimistic outlook for inflation.
The monetary policy committee reduced its benchmark rate by 25 basis points to 8%, Governor Lesetja Kganyago told reporters at a briefing north of Johannesburg on Thursday. That matched the median estimate of 24 economists in a Bloomberg survey. Only one analyst had penciled in a 50 basis-point cut.
The move follows a 50 basis-point rate reduction by the Federal Reserve on Wednesday and a forecast for further cuts that’s seen leading an easing in global financial conditions. In addition to the 25 basis-point cut, South Africa’s MPC also considered lowering the rate by 50 basis points and leaving it unchanged, Kganyago said.
“The MPC ultimately reached consensus on 25 basis points, agreeing that a less restrictive stance was consistent with sustainably lower inflation over the medium term,” he said. The panel assessed the adjustment to be a prudent stance to take, he said. “You have got to be cautious, adventurism is not part of our monetary policy toolkit.”
South Africa’s rand held gains after the announcement. The currency traded 0.3% firmer at 17.4863 per dollar as of 5:42 p.m. in Johannesburg. The yield on local-currency government bonds due February 2035 eased 2 basis points to 10.16%.
On the eve of the South African Reserve Bank’s announcement, data showed inflation cooled more than expected in August to 4.4%, taking it below the midpoint of the central bank’s 3% to 6% target band for the first time in more than three years.
The central bank sees inflation averaging 4.6% this year, 4% next year and 4.4% in 2026. Those forecasts were lowered from 4.9%, 4.4% and 4.5% at the previous MPC meeting.
“The risks to inflation are assessed as balanced,” Kganyago said, adjusting language from the July MPC statement in which he said the balance of risks was “assessed to the upside.”
Previous stubborn price-growth had prompted the MPC to keep the benchmark rate at 8.25% since May 2023, despite weak economic growth in Africa’s most industrialized nation and an unemployment rate above 30%.
The bank has one more policy meeting before the end of the year. Forward rate agreements, used to speculate on borrowing costs, are pricing in 35 basis points of easing.
What Bloomberg Economics Says…
The shift in the SARB’s policy stance is consistent with lower inflation over the next couple of years. We expect the SARB to deliver additional 25-basis-points cuts in November and May — taking interest rates to 7.5% — and then put policy on hold.
The MPC’s rate decisions are all data-driven and are taken after vigorous debate among its members, according to Kganyago.
“You enter the room with three different views and at the beginning of the meeting you will sit there and say: ‘Are these chaps ever going to reach a decision,’” Kganyago said. “The one thing about them is that they understand data and the one thing we do here to arrive at a decision, we beat the data until it confesses.”
