The better news on the inflation front is gradually being translated into lower interest rates, thus modestly easing borrowing costs for businesses and consumers. At its latest meeting, the Monetary Policy Committee (MPC) again – by a four to two vote – cut interest rates by another 25 basis points (bps).
In commenting on the latest decision by the MPC to once more reduce the repo rate by 25 bps, Prof Raymond Parsons, economist from the NWU Business School, says it was widely expected.
He says with inflation now expected to converge well within the 3% to 6% target range of the South African Reserve Bank (SARB) in the period ahead, the recent winding down in the rate of inflation has therefore created the space for the interest rate cutting cycle to continue this year.
“Hence, although future MPC decisions are said to be outlook-dependent, further cuts in borrowing costs this year would nonetheless further underpin consumer and business confidence. Monetary policy is still in restrictive territory and – given the present slow and uneven economic recovery in South Africa – needs to be further supported by lower borrowing costs wherever possible.”
Prof Parsons says the GDP growth is generally expected to rise to around a modest 1,7% in 2025 and the MPC itself expects GDP growth to reach 2% only by 2027.
“However, as was emphasised in the MPC statement, the global economic outlook is now becoming increasingly uncertain in the medium term. The MPC warns that the tariff and related policies announced so far by the new United States (US) Trump administration have injected a large element of unpredictability into the global inflation and interest rate outlook, including for South Africa.”
He explains that if renewed inflation does eventually develop in the US, this will influence the monetary policy of the US Federal Reserve and possibly mean global rates staying higher for longer.
“Nevertheless, MPC research revealed today has also confirmed that, in the event of accelerated structural reforms taking place in South Africa, there is a prospect of a much higher 3% GDP growth (with low inflation) by 2027. Economic policy must therefore urgently implement growth-friendly policies and projects that strengthen South Africa’s economic performance in the years ahead.”
