Sarb cuts rates as economy weak, inflation steady

The South African central bank cut its main lending rate by 25 basis points to 6.50%, as expected, citing weak economic growth and inflation which has stayed around the midpoint of its target range.

The last time the South African Reserve Bank (Sarb) cut its repo rate was in March 2018.

The Sarb is one of many central banks under pressure to ease monetary policy as fears over domestic and global growth have intensified.

“The MPC welcomes the continued downward trend in recent inflation outcomes and the moderation in inflation expectations of about one percentage point since 2016,” Sarb Governor Lesetja Kganyago told a news conference.

Kganyago said the overall risks to the inflation outlook were assessed to be largely balanced and that economic growth was expected to rebound in the second quarter after a sharp 3.2% contraction in the first quarter.

Thursday’s rate decision was unanimous.

Twenty-four of 30 economists polled by Reuters expected the rate to be lowered to 6.50%. Two expected a cut of 50 basis points and the other four said rates would be left unchanged.

Earlier this year a faction in the governing African National Congress (ANC) pushed for the Sarb’s mandate to be broadened to explicitly include boosting economic growth and job creation, as well as price stability.

Another faction aligned with President Cyril Ramaphosa said no such plans were being considered, but it was enough to rattle markets.

Kganyago, recently re-appointed to a second five year-term, is a staunch defender of the bank’s independence.