Repo rate cut not a surprise but very welcome

The decision of the South African Reserve Bank (Sarb) to cut the repo rate by 25 basis points to 7% was not a surprise for economists, but is very welcome in any way for cash-strapped consumers who battle to make their income last until the end of the month.

Sarb Governor, Lesetja Kganyago, announced the Monetary Policy Committee’s (MPC) decision on Thursday afternoon.

Jee-A van der Linde, senior economist at Oxford Economics Africa, says the MPC now appears more dovish, while it was more hawkish in the recent past. “The Sarb’s updated forecasts mark a definite shift in direction, with the MPC indicating that from now on, it will aim for the low end of the bank’s inflation target range of 3%-6%.

“While the governor noted that the Sarb will continue engaging with the National Treasury to complete inflation target reform, today’s meeting suggests that the Sarb is forging ahead. With inflation set to increase in the second half of 2025, the task of lowering inflation expectations will become essential.”

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Repo rate cut in line with economists’ expectations

Maarten Ackerman, chief economist at Citadel, says the repo rate cut is fully in line with their expectations. “It reflects the Sarb’s growing confidence in South Africa’s inflation outlook and creates room for more accommodative monetary policy in a very weak growth environment.”

 He says a combination of factors supported today’s decision, including weak domestic economic conditions, persistently low inflation and a global monetary shift towards easing. “The Sarb has been more cautious than some of its global peers, but this cut suggests that inflation is now firmly anchored and opens the door for a more flexible approach going forward.

“This move signals that the Sarb is comfortable with the inflation trajectory and is willing to provide support to the economy, as long as price stability remains intact.”

Ackerman believes there is room for at least one more cut before the end of the year. “Beyond that, we expect the Sarb to pause and reassess the data, particularly inflation trends and global developments.

“The Sarb’s decision reflects a careful balance between supporting the economy and maintaining inflation stability. It provides some relief in a tough environment, while keeping the longer-term inflation outlook firmly in sight.”

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Cutting repo rate timely and strategic move

FNB CEO Harry Kellan says the Sarb’s decision to cut the repo rate by 25 basis points is a timely and strategic move aimed at supporting households and businesses. “This decision will help soften some of the impact of tariffs on the economy.

“We expect certain sectors will be adversely affected by the new tariffs, but this does not fully erode the good growth momentum across the economy, as we expect to see real growth for 2025 to be better than in 2024, which should continue into next year.”

Mamello Matikinca-Ngwenya, chief economist at FNB, says while they expected the MPC to reflect more restraint amid a contentious global trade environment that could intermittently weigh on sentiment, lift the cost of borrowing and weaken the rand, today’s decision is not a surprise. 

“It highlights the MPC’s focus on stable domestic conditions. Despite adverse global conditions and rising local inflation, as positive base effects fade and food price pressures mount, headline inflation over the coming months should remain contained around the 4.5% midpoint of the target range.

“The trajectory is supported by weak oil prices, along with a benign local environment, that should assist with containing inflation expectations and maintaining interest rates as we think this is the last cut in this cycle. Ambitions to lower the inflation target should keep monetary policy steady.

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Repo rate announcement, including 3% inflation target interesting

Frank Blackmore, lead economist at KPMG, says one of the most interesting statements the governor made was that the Sarb will start to aim at the bottom of the inflation target range, which is at 3% as their inflation target going forward.

“There are several benefits to lowering the inflation target from the current 4.5% to the 3% level. Firstly, core inflation remains close to 3% instead of reverting towards 4.5%. However, expectations will take a while to come down to this 3% level as well.

“Secondly, there will be further rate cuts on the 3% target scenario. The governor mentioned up to five more possible cuts, which would mean a repo rate level of around 5.75% and a prime of 9.25%. This would lower the borrowing costs and support the strength of the rand. Reducing inflation to this level is an exciting prospect going forward.”

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Good news about repo rate cut, but keep your instalment the same

Hayley Parry, money coach and facilitator at 1Life’s Truth About Money, says taking the prime lending level down to 10.5% is good news for consumers.

“Although a 0.25% decrease does not sound like much from a consumer perspective, there are some interesting opportunities presented to us. This means if you took out a R1 million home loan from tomorrow you would be paying R9 984 per month on that home loan to pay it off for the next 20 years. A month ago, you would have been paying R168 more on that loan per month.

“While the R168 may not make that much of a difference in paying off your home loan, remember if you kept your home loan repayment on what it is today, rather than what it will drop to tomorrow, you will benefit from compound interest.

“Over the course of 20 20-year home loan, you will be able to save more than R89 000 and over a year’s worth of repayments. This means you would pay off your home loan in less than 19 years instead of 20 years. You will end up saving a significant amount of money in the long run.”

Parry challenges consumers with the new repo rate cut to continue making the same payments they were making before, whether it is on a car, home loan, or credit cards. “This will help you pay off your debt faster, and once it is cleared, free your monthly cash flow going forward.”