The South African Reserve Bank has reduced the repo rate by 25 basis points to 6.5% in line with market expectation.
“The MPC [Monetary Policy Committee] unanimously decided to reduce the repurchase rate by 25 basis points to 6.5% per annum, with effect from 19 July 2019,” Reserve Bank Governor Lesetja Kganyago announced on Thursday.
Thursday’s rate cut decision follows the November 2018 repo rate increase made by the central bank to stem inflation pressures.
The MPC said it remains of the view that current challenges facing the economy are primarily structural in nature and cannot be resolved by monetary policy alone.
“Implementation of prudent macroeconomic policies, together with structural reforms that raise potential growth and lower the cost structure of the economy, remains urgent,” it said.
The bank now expects GDP growth for 2019 to average 0.6% (down from 1.0% in May). The forecast for 2020 and 2021 is unchanged at 1.8% and 2.0% respectively.
On inflation, the bank welcomed the downward trend in recent inflation outcomes and the moderation in inflation expectations of about one percentage point since 2016.
“The committee would like to see inflation remain close to the mid-point of the inflation target range on a more sustained basis, with inflation expectations also anchored around these levels,” said the bank.
On factors that pose a risk to the inflation outlook, the committee highlighted that the financing needs of State-owned enterprises (SOE) could place further upward pressure on the currency and long-term market interest rates for all borrowers.
Food, electricity and water prices also remain important risks to the inflation outlook.