Reserve Bank’s ‘Conservative’ Interest Rate Cut ‘Expected’ As SA Gears Up for Seasonal Spending

• The Reserve Bank has cut the interest rate by 25 basis points after a unanimous vote by its Monetary Policy Committee
• The new lending rate, effective on 22 November 2024, is in line with market expectations, although a higher cut was expected
• The Reserve Bank additionally announced that future rate hikes could be expected depending on the external environment
• Efficient Group chief economist Dawie Roodt told Briefly News there were thoughts of a more significant 50 basis point cut

JOHANNESBURG — The South African Reserve Bank (SARB) has announced another interest cut — offering cash-strapped citizens some reprieve heading into the festive season.

SARB's Monetary Policy Committee (MPC) voted to cut rates by 25 basis points after passing its latest decision on Thursday, 21 November 2024.

Reserve Bank cuts interest rate

Economists welcomed the announcement, which brought the repo rate to 7.75%, from 8% the previous MPC, and the prime interest rate to 11.25%, dropping from 11.5% and lining up with market expectations.

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Efficient Group chief economist Dawie Roodt said there were thoughts of a more significant 50 basis point cut after SA's headline inflation eased.

However, given the riskier global economic environment, the MPC chose to take a modest approach, with the new rates coming into effect on 22 November.

"The Reserve Bank has been quite conservative in its decision. And this will, of course, bring some relief to cash-strapped South Africans while likely supporting economic growth a little. [Certainly], not too much," Roodt said, speaking to Briefly News.

South Africans, many of whom notably carry over debt into the new year, spend significantly during the festive season, with the average budget for extra expenses being between R5,000 to R6,000 per person, data suggests.

During the announcement, Reserve Bank governor Lesetja Kganyago said future rate hikes could be expected in line with the risk outlook.

He said global interest rates could increase further and highlighted global shifts, namely the 2024 US presidential election, for influencing the rand's recent depreciation.

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Roodt said the overall picture, barring any major crisis, looked positive.

"Everything adds up, and the Reserve Bank clarified that further cuts can be expected, provided no issues arise, locally or internationally.

"So, good news for South Africa, with the expectation of further interest cuts over the next few months," added Roodt.

Kganyago said although forecasts of easing rates were inevitable, ensuring a 50 basis point cut in the short term, reasonable expectation was warranted.

"The decisions will continuously depend on the outlook dependent ... some scenarios could see inflation being higher than the baseline, and the MPC explored the necessary risk cases during the vote," he said.

Due to the challenges of the external environment, Kganyago implored the country to target sustaining domestic reforms, including reducing the administered price inflation.

"That, in addition to reaching a reasonable public debt level, keeping real wage growth in line with gains in productivity, and further repairing and strengthening network industries, would improve economic conditions."

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Source: Briefly News