BUSINESS NEWS - The South African Reserve Bank's Monetary Policy Committee (MPC) has decided to reduce the repo rate by 25 basis points to 7%, with effect from the 1 August 2025. 

Addressing a media briefing on the MPC’s decision on the repo rate, SARB Governor Lesetja Kganyago said the decision to reduce the policy rate was unanimous.

“The rand has strengthened and inflation expectations have moderated. The June Consumer Price Index (CPI) print showed headline inflation at 3% and core at 2.9%, still at the bottom of our target range.

“That said, food inflation has risen, mainly due to meat prices. Fuel prices are also falling more slowly now, compared to the recent past. We therefore expect headline inflation to rise over the next few months, averaging 3.3% for the year, in line with our earlier forecasts.

“Prices then stabilise around the target objective over the rest of the forecast period. The risks to this outlook appear balanced,” the Governor said on Thursday.

While the economic activity for the first quarter of 2025 was seen as weak, the recent data flow has been positive, suggesting that the economy picked up in the second quarter of the year. 

“Statistics South Africa has since reported that growth was just 0.1%, in line with our expectations. However, there was also a downward revision to earlier Gross Domestic Product (GDP) data. Along with an assumption of higher United States tariffs on South Africa, this has caused us to mark down our 2025 growth forecast.

“The economy’s underlying growth trend remains low, mainly due to persistent supply-side problems, for instance, in logistics. Higher levels of uncertainty also seem to have affected output, with business and consumer confidence deteriorating in the first half of the year. However, we still expect modestly higher growth in the coming years, supported by ongoing structural reforms,” he said.

According to the Governor, over the past few months, the prospect of a lower inflation target has bolstered the rand and lowered long-term borrowing costs. 

“It is important to sustain this progress, and to minimise uncertainty about the longer-term objectives of monetary policy. Therefore, the MPC now prefers inflation to settle at 3%. In line with this, we have decided to aim for the bottom of our inflation target range, of 3-6%. 

“We welcome the recent moderation in inflation expectations and would like to see expectations fall further. This would expand policy space and make our framework more robust to shocks. 

“We will use forecasts with a 3% inflation anchor at future meetings. The South African Reserve Bank will also continue working with the National Treasury to complete target reform and achieve permanently low inflation,” Kganyago said. - SAnews.gov.za

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