Repo rate reduced by 25 basis points
The South African Reserve Bank has cut the repo rate by 25 basis points to 7.25%.
It takes the rate at which consumers borrow from commercial banks to 10.75%.
Governor Lesetja Kganyago says the Monetary Policy Committee made the decision despite ongoing uncertainty in the global environment.
"While the inflation outlook appears benign, we considered an adverse scenario, which illustrates the upside risks. This was based on a global slowdown, triggered by escalating trade tensions, where the rand depreciates sharply.
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“The scenario showed how a country with some fundamental vulnerabilities, like South Africa, risks stagflation, with growth moving lower while inflation rises due to currency weakness. In these conditions, monetary policy tightens to stabilise the macroeconomy."
He says the committee also considered a scenario where inflation could be brought down to 3%.
"For some years now, internal and external analysis has shown that our inflation target is too high and too wide. The National Treasury and the South African Reserve Bank have engaged extensively on this issue, and technical work is at an advanced stage. Now that inflation has slowed, we have a chance to lock in lower inflation at low cost. This scenario illustrates that opportunity."
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