Economists and trade unions have welcomed the latest interest rate cut, saying it will stimulate economic growth, but have warned that the SA Reserve Bank (Sarb) may remain hawkish regarding any further cuts this year.
Standard Bank economist Elna Moolman said the 25-basis point repo rate cut announced by the bank’s monetary pricing committee on Thursday aligned with forecasts that reflect current low inflation pressures and expectations for inflation to remain within target ranges in the medium to long term. The latest cut reduces the repo rate to 7.5%, bringing the prime lending rate to 11%.
However, it was a split decision motivated by below-inflation target outcomes and a benign outlook, with two members voting for no change in rates.
Moolman said the bank remained cautious about inflation forecast risks and future rate cuts would depend on these risks.
“This decision is expected to support the South African economy, with a notable improvement in economic growth forecast for the year ahead compared to the previous year.”
Nedbank’s Economic Unit said the committee had struck a “cautious tone”, warning that the medium-term inflation outlook was more uncertain than usual, with the external environment posing material upside risks.
“The MPC was clearly worried about the more hawkish tilt in US monetary policy and its likely negative implications for the rand’s future course. The US Federal Reserve opted to leave its policy rate unchanged, choosing to wait and see how President Trump’s economic policies will impact US inflation in the months ahead,” the Nedbank economists said.
“No further US rate cuts would support a strong US dollar and weigh on the rand. If sustained, a weakening rand would place upward pressure on domestic inflation.”
Nedbank said other upside risks included hefty electricity tariff hikes and above-target increases in other administrative prices.
“The Sarb tweaked its inflation forecasts here and there, but the trajectory still pointed to contained price pressures. Headline inflation is forecast to rise off a low base, albeit at a slightly slower pace than envisaged in November,” the economists said.
“Inflation remains comfortably below the target until the third quarter of 2025 and then climbs to 4.6% in the fourth quarter and stays there for much of 2026, before easing to 4.5% in the second half of 2027. The slight downward adjustments mainly reflect the lower base (or starting point) and generally subdued price increases in most CPI components, which largely offsets the impact of a weaker rand.”
Cosatu welcomed the interest rate cut, saying it had been disappointed the last time the bank had cut the rate only by 25 basis points, considering that at the time inflation was the lowest it had been in more than four years.
“The current repo rate cut will provide welcome relief to workers who have had to contend with annual price increases for medical aid, school fees and uniforms, electricity tariff increases, as well as fuel prices, while at the same time, salary increases have not kept pace with inflation,” said Cosatu national spokesperson Zanele Sabela.
“The inflation rate has decreased substantially from its peak of 7.8%. Cosatu believes this leaves ample room for the MPC to be bold, bring down the repo by between 100 and 200 basis points this year and kickstart this slumbering economy into gear, creating badly needed jobs.”
She said the union would continue engaging the Sarb to ensure it extended the rate-cutting cycle, to provide “much-needed oxygen to the economy that has been struggling to grow beyond 1%”.
“The federation calls on government to abandon its obsession with austerity as it has done nothing but saddle the country with an unemployment rate of 41.9%,” Sabela said.
She urged the government to revive the economy by providing extra support to Eskom, Transnet and Metro Rail, which are “crucial for the optimal functioning of the economy, and in particular to end Eskom’s dependency on unaffordable double-digit tariff hikes”.
“Government also needs to accelerate the review of the fuel price regime, reduce related taxes and zero rate key food items to provide relief to consumers, commuters and the economy,” Sabela said.
