SARB's latest rate cut offers relief to homeowners as inflation rises
Governor Lesetja Kganyago on Thursday said the Monetary Policy Committee had voted unanimously for the cut in a stable inflationary environment.
Image: SARB/Facebook
The South African Reserve Bank (SARB) has lowered the prime lending rate by 0.25 percentage points to 10.5%.
Although this decision was expected, it still provides important relief to consumers as inflation rises. On Thursday, Governor Lesetja Kganyago confirmed that the Monetary Policy Committee unanimously agreed to this cut, which is the fifth reduction since September, bringing the total drop to 1.25 percentage points.
The move is aligned with a cautious global trend toward stimulating consumer spending and investment, says Bradd Bendall, the national head of sales at BetterBond.
"Homeowners will welcome today’s decision to drop the prime lending rate to 10.5% - a level last seen in 2022,” Bendall said.
He added that a lower prime lending rate provides much-needed relief to consumers and homeowners struggling to balance their monthly obligations with rising living expenses.
“For the average homeowner with a bond, this reduction could translate to meaningful monthly savings. On a R2 million home, for example, the monthly bond repayments will drop by R337 from R20 305 to R19 968. It will also reduce the amount payable over a 20-year period by R80 876.”
South Africa’s economy remains under strain, with gross domestic product (GDP) growing only 0.1% in the first quarter, largely on the back of agriculture.
The International Monetary Fund forecasts 1% growth for the year, but this could fall to 0.3% as a result of US President Donald Trump’s ongoing trade war.
Tariffs of 30% on all goods exported to the US – in addition to others already in effect – come into force at midnight.
Despite this, SARB remains optimistic.
Kganyago said expectations for price increases in the coming months remain in line with forecasts.
“For policy, as we showed last time, lower inflation allows for lower interest rates,” he said.
Dr Elna Moolman, Standard Bank Group head of South Africa Macroeconomic Research, said: “Inflation has been quite benign, and the inflation forecasts remain quite benign, and this created scope for the Reserve Bank to provide a little bit of additional relief to the South African economy.”
Maarten Ackerman, chief economist at Citadel, said there was scope for at least one more cut this year.
“Beyond that, we expect the SARB to pause and reassess the data, particularly inflation trends and global developments,” he added, pointing to weak domestic conditions, low inflation and a global trend towards monetary easing.
“SARB has been more cautious than some of its global peers, but this cut suggests that inflation is now firmly anchored and opens the door for a more flexible approach going forward,” Ackerman said.
Get your news on the go, click here to join the Cape Argus News WhatsApp channel.
Cape Argus