The South African Reserve Bank (SARB) has cut interests by 25 basis points to 7.5%.
This leaves the prime lending rate at 11%.
The announcement was made by Reserve Bank Governor Lesetja Kganyago in Pretoria on Thursday, following a Monetary Policy Committee (MPC) meeting.
Kganyago said it was a split decision by MPC members.
“Four members preferred this action, while two supported an unchanged stance.
The committee ultimately agreed that it was possible to reduce the degree of policy restrictiveness, making the stance somewhat more neutral.
However, all members were concerned about the uncertain global outlook,” said Kganyago.
In addition, he said the forecast sees rates drifting slightly lower over the next few years, stabilising near 7.25%.
“But this rate path from the Quarterly Projection Model remains a broad policy guide.
The MPC would like to emphasise that its decisions will be made on a meeting-by-meeting basis, with no forward guidance and no pre-commitment to any specific rate path.
Such decisions will continue to be outlook dependent, responsive to data developments, and sensitive to the balance of risks to the forecast,” explained Kganyago.
According to the Governor, headline inflation averaged 4.4% last year, near the middle of the Reserve Bank’s target range.
Inflation slowed to 3% in December, having started the year above 5%.
Kganyago said this was mainly due to favourable goods-price developments, including food inflation reaching 15-year lows, as well as lower fuel costs.
“Because of these transitory factors, inflation is likely to remain in the bottom half of our target range through the first half of this year.
But headline inflation should revert to around 4.5% thereafter, aided by core inflation which remains at or below the midpoint over the forecast horizon.
While our exchange rate assumptions have shifted towards a weaker rand, the effects on the inflation forecast have been limited,” explained the Governor.
Kganyago said the decrease will come into effect on Friday.
