The announcement comes after CPI edged up to 2.8% last week, though it remains well within the mid-range of the target band. At the last MPC meeting in March, the repo rate was kept unchanged at 7.5%. This makes for a total of two rate cuts this year.
Inflation, globally and domestically, has defied the pressures of ongoing geopolitical conflicts, elevated prices, global trade fragmentation and protectionist trade policies, and has settled consistently.
He said while the inflation outlook remained benign, the MPC considered an adverse scenario characterised by upside risks, worsening trade tensions and rapid rand depreciation.
“This scenario showed how a country with some fundamental vulnerabilities, like South Africa, risks stagnation, with growth moving lower while inflation rises due to currency weakness. In these conditions, monetary policy tightens to stabilise the macro economy.”
The governor said that given the lower forecast, the MPC had assessed the risks to growth as balanced. The MPC reduced rates from 7.75% to 7.5% in January.
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Reserve Bank announces second repo rate cut of the year, first since January
Five MPC members favoured 25 basis points, while one preferred 50
Reserve Bank governor Lesetja Kganyago announced the second repo rate cut of the year on Thursday afternoon, bringing the repo rate down to 7.25%.
Briefing reporters in Pretoria on Thursday, Kganyago said higher trade barriers and global uncertainty dampen the global growth outlook.
He said the monetary policy committee (MPC) had observed that inflation could be slower globally, given weaker world growth, and the bank expected global interest rates to slow during the year.
Mining and manufacturing data have been disappointing, and unemployment continues to rise. GDP projections are of 1.2% growth this year, increasing to 1.8% by 2027. The inflation forecast is revised downward due to lower oil prices.
“Against this backdrop, the MPC decided to reduce the policy rate by 25 basis points with effect from May 30. Five members favoured this action, while one preferred a cut of 50 basis points,” he said.
The announcement comes after CPI edged up to 2.8% last week, though it remains well within the mid-range of the target band. At the last MPC meeting in March, the repo rate was kept unchanged at 7.5%. This makes for a total of two rate cuts this year.
Inflation, globally and domestically, has defied the pressures of ongoing geopolitical conflicts, elevated prices, global trade fragmentation and protectionist trade policies, and has settled consistently.
He said while the inflation outlook remained benign, the MPC considered an adverse scenario characterised by upside risks, worsening trade tensions and rapid rand depreciation.
“This scenario showed how a country with some fundamental vulnerabilities, like South Africa, risks stagnation, with growth moving lower while inflation rises due to currency weakness. In these conditions, monetary policy tightens to stabilise the macro economy.”
The governor said that given the lower forecast, the MPC had assessed the risks to growth as balanced. The MPC reduced rates from 7.75% to 7.5% in January.
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