Reserve Bank Reduces Repo Rate to 7.75%, Signaling Consumer Relief Amid Easing Inflation

South African Reserve Bank (SARB) Governor Lesetja Kganyago announced a 25-basis point cut in the repo rate, lowering it to 7.75%, as inflation continues to decline.

When the words ‘interest rate’ are mentioned, the rest of the statement is often dreaded. Fortunately, the South African Reserve Bank (SARB) has delivered another financial breather by cutting the benchmark repo rate by 25 basis points, bringing it to 7.75%. This makes it the second reduction in the ongoing rate-cutting cycle, initiated in September 2024. The move comes as inflation dips below the 4.5% midpoint of the SARB’s target range, providing relief to consumers burdened with debt.

Inflation Rates Drop Significantly

Inflation eased to 3.8% in September from 4.4% in August, comfortably below the SARB’s 3%-6% target band. Economists predict a further decline to 3.3% for October, driven by fuel price reductions and a stronger rand.

Citadel Chief Economist Maarten Ackerman emphasized the positive impact of these developments:

“As inflation nears the lower end of the target range, the Reserve Bank has room to continue cutting interest rates, offering relief to consumers managing high debt levels.”

Global Trends Influence SARB’s Decision

South Africa’s cautious approach to interest rate adjustments contrasts with global trends. For instance, the US Federal Reserve has already implemented a cumulative 75 basis-point reduction this year. However, SARB Governor Kganyago highlighted the need to maintain a favourable interest rate differential to support the rand amidst global uncertainties.

The rand recently depreciated from R17.29/$ to R18.15/$, influenced by geopolitical events such as the potential return of Donald Trump to the US presidency. A weaker rand could elevate inflation due to increased import costs, particularly for oil.

Impact on Consumers and Future Projections

The latest rate cut reduces the prime lending rate to 11.25%, lowering monthly instalments on an R2-million home loan by approximately R340. Looking ahead, Nedbank economists anticipate a further 75 basis points reduction by 2025, which could bring the repo rate down to 7%.

Governor Kganyago remains optimistic about inflation in the short term but warns of potential risks:

“The medium-term outlook is uncertain, with rising costs for essentials like food, electricity, and water posing significant challenges.”

Discussions on a New Inflation Target

The SARB is also revisiting its inflation target range. Governor Kganyago recently highlighted the possibility of lowering the target in line with international standards. This discussion could shape future monetary policy decisions and enhance South Africa’s economic stability.

Key Takeaways for South Africans

Repo rate: Reduced to 7.75%
Inflation: Dropped to 3.8% in September
Prime rate: Now at 11.25%
Consumer relief: Lower debt repayment costs
Future outlook: More rate cuts likely in 2025

As South Africa enters the festive season, the continued easing of interest rates brings welcome relief for consumers, signalling better days ahead for the economy.

Also read: Western Cape Property Prices Increase by 7.6% in 12 Months, While Gauteng Sees 1.1% Decline