Skip to main content
Invest Now
012 012 5270
Copyright © Aluma Capital (Pty) Ltd. All rights reserved.
Aluma Capital (Pty) Ltd is a registered Financial Services Provider (FSP 46449) in terms of The Financial Advisory and Intermediary Services Act (37 of 2002)
Frederick Mitchell, Chief Economist | Aluma Capital (Pty) Ltd
Frederick Mitchell
November 21, 2024

Another 25 Basis Point Interest Rate Cut

The South African Reserve Bank cut the interest rate by 25 basis points, contrary to some expectations for a larger reduction. Inflation remains within the target range of 3% to 6%, and positive signs for growth include rising confidence and stable electricity supply. Despite subdued manufacturing production, increased disposable income supports demand, contributing to a gradual economic recovery.

The interest rate has been reduced by another 25 basis points, even though some market analysts anticipated a 50-basis point cut. This cautious approach by the South African Reserve Bank highlights their commitment to careful monitoring. The Reserve Bank has noted that inflation remains contained, with core inflation staying within the target range of 3% to 6%. Additionally, rising confidence levels and a stable electricity supply are promising signs for growth in late 2024 and into 2025, with economic growth projected at 2.0% for 2027.

Commissioner Lesetja Kganyago emphasized that there are still upside risks related to inflation, particularly due to anticipated increases in administered prices for electricity and water. On the demand side, the economy appears to be rebounding, bolstered by increased disposable income following withdrawals from the two-pot pension system. However, he pointed out that the supply side remains subdued, as manufacturing production numbers came in lower than expected.

The Governor also noted that the economy seems to be gradually recovering, following several reforms implemented under the new Government of National Unity (GNU), as evidenced by a decrease in unemployment numbers during the third quarter of 2024. The Bank’s inflation forecast for 2025 is around 4.5%, and future interest rate decisions will be data-driven based on current economic conditions.

Back to News

More Coverage

Budget Speech 2025

A Balancing Act
Much has happened in the last twelve months as well as the last month since the postponement of the February 2025’s budget. The big talking point and “bone of contention” was the mooted 2% increase in VAT. This increase was met with fierce resistance and made “balancing the budget” quite difficult, as the government has to decide between increasing taxes of cutting expenditures, leaving the Government of National Unity (GNU) between a “rock and a hard place” as it currently stands. The increase in VAT or other taxes sprout from the various expenditure items the government announced or want to implement which among other things include the National Health Insurance (NHI), a transformation fund and continuation of the Covid-19 relief grant and the possible introduction of a Basic Income Grant (BIG).

A View on Company Profits

2024 Q4
Company profitability is vital for investors and the government. In South Africa, the Gross Operating Surplus (GOS) indicates positive growth, with profits surpassing inflation in late 2024. Notable gains in the Agricultural sector (68.8%) contrast with modest growth in Mining and Personal Services, reflecting an optimistic economic outlook post-election.

A Sticky Affair

The South African Budget Speech Postponement
The Laffer Curve is an economic theory that describes the relationship between tax rates and tax revenue. Proposed by economist Arthur Laffer, the curve suggests that there is an optimal tax rate that maximizes government revenue without discouraging productivity, investment, and economic growth. The central idea is that increasing tax rates beyond a certain threshold can lead to diminishing returns; higher taxes may disincentivize work, entrepreneurship, and investment, ultimately reducing the overall tax base.

GDP, Economic Growth and Inflation

2024 Q4
The South African economy showed resilience with a 0.6% growth in the fourth quarter of 2024, despite challenges. Key sectors like Agriculture and Finance thrived, and improved consumer demand signals optimism for 2025. With continued market confidence and government reforms, there is potential for significant economic advancement ahead.

Private Sector Credit Extension (PSCE)

January 2025
In January 2025, credit demand rose by 4.6%, exceeding expectations, although overall demand is still modest. Interest rate cuts are expected to enhance property and asset purchases as disposable incomes improve. As consumers increasingly rely on credit, overall demand for goods and fixed assets is poised to rise throughout 2025
0:00
0:00