In a significant move, the South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) has reduced the repo rate by 25 basis points, lowering it from 8.25% to 8% on 19 September 2024. This marks the first rate cut in eight consecutive meetings, signaling a potential shift in monetary policy as global inflation eases.
SARB Governor Lesetja Kganyago announced, “Global conditions have become more favorable, with inflation rates slowing in major economies.” He noted that several central banks, including the European Central Bank, the Bank of England, and the US Federal Reserve, have lowered interest rates recently, contributing to a more optimistic global outlook.
Stronger rand and stable inflation outlook
Alongside these global improvements, the South African economy has seen some relief. The rand strengthened to R18.04 to the US dollar, which, combined with lower oil prices, has kept inflation in check. Headline inflation dropped to 4.4% in August—its lowest level in three years. Kganyago highlighted that inflation is expected to remain below the midpoint of the target range (4.5%) until 2026, thanks to this favorable exchange rate and other factors.
“We continue to forecast a dip in headline inflation, supported by the stronger exchange rate and lower oil prices,” said Kganyago.
Investment challenges persist despite cautious optimism
Despite these positive trends, South Africa faces ongoing challenges, particularly in terms of investment. The country has seen investment contraction for four consecutive quarters. Kganyago pointed out, “A stronger investment performance is a pre-requisite for sustained higher growth.”
On the brighter side, improvements in electricity supply and reforms in network industries are expected to provide a more stable foundation for economic growth, with GDP growth projected at 0.6% in both the third and fourth quarters of 2024.
Overall, while South Africa’s growth prospects are improving, Kganyago warned that global risks remain, particularly in the form of geopolitical instability and inflationary shocks. “A soft landing is looking more likely, but it is not inevitable,” he cautioned, urging caution as central banks worldwide continue to move carefully.
