In brief
- As widely expected, the MPC of the South African Reserve Bank (SARB) lowered the repo rate by 25bps to 7.50% at the January 2025 meeting, the third consecutive meeting with a rate cut outcome. The vote was split with 4 MPC members favouring a 25bps cut whereas 2 policymakers favoured a hold decision.
- The policymakers project inflation to average 3.9% this year before climbing slightly to 4.6% in 2026. The reweighting of the CPI basket, coincidentally on the MPC decision day is not expected to have a significant impact on the policymakers’ inflation projections.
- Amidst the ongoing tariff threats from the US, the SARB reviewed a 10.0% universal tariff increment. Nevertheless, the monetary authorities seemed to have a high-level assessment of this trade war scenario, given the ambiguity around the exact tariff measures. We may have a better sense in subsequent MPC meetings as the layer of global trade uncertainty fades.
- From a domestic standpoint, SARB considered a much benign scenario that reflects continued reform momentum benefitting from the current GNU regime. In this scenario, the SARB expects growth to be higher by 2.4% from the current 2032 baseline
- As has been the case with recent MPC meetings, clarity around the transition to a lower mid-point inflation target of 3.0% cropped up during the post MPC meeting engagement. The IMF also weighed on the macroeconomic implications of a lower inflation target given its potential benefits.
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