South Africa’s central bank has reduced its primary interest rate by 25 basis points, bringing it down to 7.25%, in a move aimed at stimulating economic activity amid easing inflationary pressures.
This decision came on the heels of encouraging economic data, as inflation figures fell below the central bank’s target range for the second consecutive month, signalling a potential shift in the monetary environment.
The vote within the Monetary Policy Committee revealed a divided stance, with five of its members supporting the moderate 25 basis point rate cut, reflecting a cautiously optimistic approach to monetary easing.
Interestingly, one committee member advocated for a deeper cut of 50 basis points, suggesting that some policymakers perceive greater urgency in addressing sluggish economic growth or other financial challenges.
According to a Reuters poll of economists, a split decision was largely expected, as the South African Reserve Bank is known for its conservative and risk-averse posture in the face of uncertain global and domestic conditions.
Currently, inflation remains well-contained in South Africa, the continent’s most industrialised economy, providing the central bank with a window of opportunity to adjust rates without undermining price stability.
In April, headline consumer inflation was recorded at 2.8% year-on-year, comfortably below the official target range of 3% to 6%, offering additional support for the central bank’s accommodative policy shift.
Back in March, the Reserve Bank had opted to keep the interest rate steady at 7.50%, citing concerns over global trade tensions, particularly the risks posed by the escalating trade war between major economies.
However, the outlook has since improved slightly, as fears surrounding the impact of U.S. tariffs and domestic budget instability have begun to subside, reducing immediate external pressures on the economy.
Notably, former U.S. President Donald Trump suspended the imposition of reciprocal tariffs on South African goods, while at home, the local ruling coalition managed to reach a consensus on the national budget, further stabilising the economic landscape.