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On Thursday, the South African Reserve Bank (SARB) announced a 25 basis point (bps) reduction in the repo rate, bringing it to 7.75%. While acknowledging the positive trend of declining domestic inflation, SARB emphasized the persistent challenges posed by the global economic environment and the uncertain outlook.
Unanimous Decision for a Cautious Cut
SARB Governor Lesetja Kganyago noted that the Monetary Policy Committee (MPC) unanimously agreed on the 25 bps cut, ruling out the possibility of a larger 50 bps reduction. This move aligns with the predictions of most economists in a recent Reuters poll, which had forecasted a cut of the same magnitude as the one implemented in September.
Inflation Hits a Four-Year Low
South Africa’s annual inflation rate fell to 2.8% in October, marking its lowest level in over four years and dipping below the SARB’s target range of 3% to 6%. Despite this decline, the central bank maintains a cautious stance on monetary policy.
“The Committee agreed that reducing the level of policy restrictiveness is still consistent with achieving the inflation target. The risk outlook, however, requires a cautious approach,” said Kganyago.
Global Challenges and Exchange Rate Pressures
Kganyago warned that global interest rates could rise again, potentially influencing South Africa’s economic stability. He highlighted the recent depreciation of the rand, which reflects the volatility of global market conditions.
Since the victory of Donald Trump in the U.S. presidential election, the rand has declined by over 3% against the dollar, following a broader sell-off of emerging market currencies.
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