As broadly expected by several economists, Reserve Bank Governor Lesetja Kganyago announced a cut of 25 basis points to the repo rate on Thursday afternoon, despite the CPI print for October moving upward to 3.6%.
This was the first monetary policy committee (MPC) meeting since finance minister Enoch Godongwana announced that the official inflation target would be adjusted downwards for the first time in 25 years, to 3%.
“The MPC decided to reduce the policy rate by 25 basis points, to 6.75%, with effect from November 20. The decision was unanimous. Members agreed there was scope now to make the policy stance less restrictive, in the context of an improved inflation outlook.”
At the briefing, Kganyago told reporters that as the central bank moves from a range target to a point target with a tolerance band, it was important to understand what the new target meant.
“The tolerance band, of one percentage point either side of 3%, does not mean we will be indifferent to inflation anywhere between 2% and 4%. We want to be at 3%.
“However, no central bank has the tools to deliver inflation at an exact point all the time. As flexible inflation targeters, we also recognise that trying to offset all price shocks would create undesirable volatility in output.”
He said South Africa continued to see this pressure as temporary, with inflation heading lower again from the beginning of next year, also noting that recent outcomes have undershot forecasts slightly.
“Because of these downside surprises, together with a stronger rand and a lower oil price assumption, we have small downward revisions to our inflation outlook for both 2025 and 2026. We remain on track to deliver 3% inflation over the medium term.”
He acknowledged that the risks to the growth outlook were assessed as balanced and that inflation had accelerated in recent months, reaching 3.6% for October.
“Growth is looking steadier than it was last year. The outcome of the second quarter surprised on the upside, and the third-quarter indicators are looking broadly positive. Our 2025 growth forecast has therefore been revised slightly higher to 1.3%.
“We continue to see growth nearing 2% over the forecast horizon. Employment has also been rising. Household spending has been relatively strong to date, supported by wealth effects, further withdrawals from two-pot pension savings, and lower inflation and interest rates.”
He warned that investment had disappointed, although a second-half recovery in investment is expected. Growth is better but not yet healthy, with risks to the growth outlook assessed as balanced, he said.
TimesLIVE
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