South African Reserve Bank Cuts Interest Rates Amid Global Inflation Slowdown

The South African Reserve Bank (SARB) has reduced its policy rate by 25 basis points to 8%, reflecting easing global inflation and improving economic conditions. Governor Lesetja Kganyago highlighted key developments in global and domestic markets, noting that inflation in South Africa has declined to 4.4% in August, a three-year low. While global inflation is slowing and central banks are cautiously easing rates, challenges remain due to geopolitical risks and potential inflationary shocks.

In South Africa, the economy performed slightly below expectations in the first half of 2024 but is projected to improve in the second half, driven by a stable electricity supply and rising confidence. Growth is expected to continue through 2026, with forecasts for inflation remaining below 4.5%, helped by a stronger rand and lower oil prices. Despite progress, Kganyago emphasized the need for continued reform efforts to sustain growth, particularly in network industries like electricity, as investment has contracted for four consecutive quarters.

Core inflation is expected to remain slightly below 4.5%, with services inflation stabilizing by early 2025. The SARB expects rates to move towards neutral in 2025, while maintaining caution against uncertainties such as rising debt, trade restrictions, and global policy volatility. Sustaining domestic reform momentum, improving infrastructure, and managing public debt are seen as critical to South Africa’s long-term economic health.