JOHANNESSBURG – The South Africa Reserve Bank (SARB) cut effective benchmark interest rates by 25 basis points on May 30, 2025, citing modest inflation and global economic risks.
The Monetary Policy Committee (MPC) voted 5-1 in favour of the cut, with one member advocating for a deeper 50bps reduction.
Governor Lesetja Kganyago said: “With low inflation and sustained global uncertainty, we see a modest range of monetary easing to support growth while maintaining price stability.”
Global economic volatility places emphasis on growth
Since the last MPC conference, global markets have faced turbulence due to changes in US trade policies, fluctuations in asset prices, and weak growth forecasts.
The US Federal Reserve held stable interest rates, but central banks like the Bank of England and the European Central Bank reduced interest rates to reflect a tremendous shift.
The SARB revised its global growth outlook downward, citing trade barriers and disruptions in supply chains.
However, lower oil prices and China's excess capacity can help contain inflation around the world.
South Africa's economic outlook
Although first quarter GDP data is still pending, early indicators for the slump in mining and manufacturing signals are with rising unemployment.
SARB currently forecasts growth in 2025 at 1.2%, improving to 1.8% by 2027. Structural reforms offer hope, but global headwinds continue.
Inflation was driven by cheaper fuels and stable core inflation (3%), at less than 3% in April.
The bank lowered its 2025 inflation forecast with the help of strong lands and cancelled VAT hikes.
Land Stability and Policy Scenarios
Rand recently hit a multi-year low before recovering. SARB investigated two important scenarios.
Adverse scenarios – Global slowdowns that create risks of land depreciation and stagflation. 3% inflation target – aligns with the lower edge of the SARB range. This will allow for deeper speed reductions (less than 6%) by 2026, potentially stabilizing expectations.
Governor Kganyago said, “While the 3% target could ensure sustainable low inflation, reforms in public debt, infrastructure and wage growth are equally important.”
The road ahead
While easing policy, SARB accelerated reforms to enhance growth, including debt reductions, infrastructure investments and increased wages in line with productivity.
The next MPC conference will further assess changes in inflation targets and global risks.
*This article was first published in sister publication techfinancials.co.za
