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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.

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