MPC Cuts Rates

The Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) cut the Repo policy rate by 0.25% at today’s MPC meeting, from 7.75% to 7.50%. The decision was not unanimous, with 4 votes in favour versus 2 supporting an unchanged stance. The European Central Bank also cut its policy rate today, unlike the US Federal Reserve which kept rates unchanged yesterday.

The divergence in interest rate policy speaks to the different growth and inflation profiles across the world currently. Growth in the US is strong, and inflation is still above target, whereas Eurozone growth, like in SA, has been more constrained and inflation less of a problem. The inflation picture in SA has improved dramatically over recent months, with CPI recording at or below the bottom of the SARB’s target range for the whole of the fourth quarter of 2024; well-below the Reserve Bank’s targeted mid-point.

SARB members highlighted their concern about the uncertain global outlook. Financial markets are also worried Trump’s policies might be inflationary. US fiscal stimulus in the form of tax cuts and deregulation could cause the US economy to heat up at a time when tariffs and deportation might also add upward pressure to prices. Trump’s strong-dollar policies could imply rand weakness, which the SARB would be averse to.

Going forward, the US Fed’s more hawkish stance of late has prompted the market to pencil in fewer potential cuts for this year. We also expect the SARB to be cautious about further rate cuts, with perhaps only one or two more this year.