The monetary policy committee of the SA Reserve Bank has decided to cut interest rates by 25 basis points. This means the repo rate is now 6.5% and the prime lending rate 10%.
The last time the central bank cut the repo rate was in July 2017, when the MPC reduced the rate by 25 basis points from 7% to 6.75%.
The repo rate is the benchmark interest rate at which the Reserve Bank lends money to commercial banks and the prime rate the rate at which commercial banks lend money to borrowers.
Kganyago said the inflation forecast of the bank has shown a moderate improvement. Indications are that a low point of the inflation cycle has been reached. The main changes in the forecast relate to the exchange rate, among others things, he said.He cautioned that the SARB’s 5-year inflation expectations have declined. He said the MPC would prefer its inflation expectation anchor closer to the mid-point of the target range of 3% to 6%. Kganyago also cautioned that an international trade war could push inflation expectations higher.
He also said the rand has appreciated since the last MPC meeting. “At current levels the bank models see the rand as somewhat over-valued.”
He aid the rand has reacted positively to recent political developments and the recent ratings announcement by Moody’s. Further support for the rand has come from recent dollar weakness.