The South African Reserve Bank (SARB) has reduced its benchmark repo rate by 25 basis points to 7.25 percent, effective Friday, in response to subdued inflationary pressures and a deteriorating domestic growth outlook. The announcement was made by SARB Governor Lesetja Kganyago during a virtual press briefing on Thursday, following a majority decision by the Monetary Policy Committee (MPC), where five members favoured the reduction and one advocated for a deeper 50 basis point cut.
This adjustment marks a notable shift in South Africa’s monetary stance, underscoring a stronger emphasis on internal economic fundamentals amidst persistent global headwinds. The central bank’s revised forecast anticipates real gross domestic product (GDP) growth of 1.2 percent for 2025, down from an earlier projection and below the National Treasury’s recently updated estimate of 1.4 percent in its February Budget Review.
Governor Kganyago highlighted the adverse influence of international macroeconomic developments, particularly the imposition of new trade tariffs by the United States and rising global trade barriers. These dynamics, he noted, have introduced elevated levels of uncertainty and are expected to exert downward pressure on both global and domestic growth trajectories.
In tandem with the downgrade in economic growth projections, SARB has also adjusted its inflation outlook. Data from Statistics South Africa indicated that headline consumer price inflation declined to below 3 percent in April, placing it at the lower bound of the central bank’s 3 to 6 percent target range. Core inflation, which excludes food and energy prices, has similarly remained subdued. The bank attributes the downward revision in its inflation forecasts to a favourable exchange rate assumption and a decline in international crude oil prices.
According to Kganyago, “The downward revision reflects both a lower starting point and our updated assumptions, including a stronger rand and moderated global oil prices.”
Commenting on the decision, Mamello Matikinca-Ngwenya, Chief Economist at First National Bank (FNB), underscored the strategic rationale underpinning the rate cut. “The MPC’s move illustrates a shift in focus towards domestic macroeconomic realities. Inflationary pressures are currently well-contained, and high-frequency indicators point to a faltering start to the year, particularly in the productive sectors of the economy,” she said.
She further noted that deteriorating global demand conditions will likely amplify existing structural weaknesses. “The overall macroeconomic context remains benign, creating policy space for a continued easing cycle,” she added.
Harry Kellan, Chief Executive Officer of FNB, welcomed the central bank’s decision, emphasising its anticipated positive impact on both consumer and business confidence. He expressed optimism that the SARB could enact further rate reductions in the near term should inflation remain muted and global financial conditions permit.
The decision arrives at a delicate juncture for South Africa’s economy, which continues to grapple with sluggish productivity growth, energy supply constraints, and geopolitical uncertainties. Nonetheless, Kganyago reaffirmed the central bank’s commitment to price stability and sustainable economic expansion, stating that policy adjustments would remain data-dependent and responsive to evolving risks.
As monetary authorities signal room for further accommodation, market participants and policymakers will be closely monitoring upcoming data releases to gauge the trajectory of inflation and output in the latter half of 2025.
