The head of the South African Reserve Bank, Lesetja Kganyago, stated that the Monetary Policy Committee agreed without dissent to reduce the lending rate by 0.25 percentage points, amid a steady inflation situation.
This will lower the prime lending rate from banks to consumers to 10.5%. The SARB has reduced interest rates four times between September 2024 and May 2025, bringing the prime lending rate down from 11.75% to 10.75% by the end of May.
The decision by the Monetary Policy Committee to lower interest rates occurs while the US Federal Reserve kept its main rate unchanged due to economic uncertainty stemming from US President Donald Trump's trade conflicts.
According to the Governor, major central banks are currently adopting a wait-and-see approach. "In the United States, there are indications of emerging inflationary pressures, particularly due to tariffs. Monetary policy is still considered 'moderately restrictive.' In Europe, however, inflation is lower, and the policy stance is more neutral. All major central banks maintained their interest rates at their latest meetings," he mentioned.
Investec's chief economist, Annabel Bishop, expressed views this week that echoed those of other analysts. Johann Els, chief economist at Old Mutual, predicted a possible 0.25 percentage point reduction this week, while Dr Elna Moolman, group head of South African macroeconomic research at Standard Bank, also supported the idea of a rate cut.
However,The Bishop anticipates this will be the final reduction in interest rates for the year..
Kganyago mentioned that the bank anticipated core inflation to increase in the coming months, with an annual average of 3.3%, consistent with previous predictions. Prices are expected to remain stable near the target level for the remainder of the forecast period. "The risks associated with this outlook seem evenly distributed," he stated, adding that food prices were rising, primarily because of higher meat costs.
Els has stated that inflation is projected to increase slightly throughout the remainder of the year, reaching approximately 4% by December,While Bishop had previously indicated that inflation for 2025 was projected to be 3.3% year-over-year.
June's consumer price index (CPI) increased to 3%, compared to 2.8% in May, representing the first instance in three months that inflation has fallen back within the South African Reserve Bank’s (SARB) 3% to 6% target range. Although this is a slight rise, inflation is still low when considering historical data and significantly lower than the 5.2% recorded a year earlier.
"For policy, as we demonstrated previously, reduced inflation leads to lower interest rates," stated Kganyago.
Kganyago mentioned that the latest flow of economic indicators has been favorable, indicating that the economy showed improvement in the second quarter of the year. The International Monetary Fund stated this week that economic growth for this year is expected to reach 1%.
"Additional steps that could enhance economic conditions involve achieving a reasonable level of public debt, reinforcing network industries, reducing administered price inflation, and ensuring real wage increases align with productivity improvements," stated Kganyago, adding that the challenges posed by the "global environment emphasize the importance of domestic reforms to boost growth," said Kganyago.