SARB Reduces Repo Rate to 7%

Lesetja Kganyago, the governor of the South African Reserve Bank (Sarb), declared on Thursday a reduction of 25 basis points to the benchmark repo rate, lowering it to 7% following the July Monetary Policy Committee (MPC) meeting.

This change means the prime lending rate for commercial banks now stands at 10.50%.

The MPC’s decision was unanimous and came just before the deadline imposed by US President Donald Trump for countries to negotiate new trade agreements or risk hefty tariffs on their exports to the US.

South Africa could face tariffs up to 30% on some exports. The economy experienced minimal growth of 0.1% in the first quarter of 2025, as expected; however, previous GDP estimates were revised downwards, as noted by Kganyago.

Read: South Africa urged to enhance US trade agreement prior to tariff deadline

The central bank has adjusted its 2025 growth forecast in response to the potential for high US tariffs on local exports. Nonetheless, recent data suggests a recovery in the second quarter, with structural reforms anticipated to drive gradual growth improvements ahead.

Kganyago viewed growth risks as balanced.

On inflation, the strength of the rand and decreasing expectations helped maintain the headline CPI at 3% and core inflation at 2.9% in June, at the lower end of the target range.

Read:
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Although food inflation has risen due to increased meat prices and fuel prices are declining slowly, the Sarb predicts an average inflation rate of 3.3% for the year, with stability expected throughout the forecast period.

Inflation outlook risks are also perceived as balanced.

Inflation targeting

Kganyago noted that recently, the expectation of a lower inflation target has “strengthened” the rand and reduced long-term borrowing costs.

“The MPC now prefers inflation to stabilize at 3%. Therefore, we have decided to aim for the lower end of our inflation target range, which is 3% to 6%,” stated the governor.

“We appreciate the recent moderation in inflation expectations and would like to see them decrease even more,” he added.

Kganyago indicated that the Sarb would rely on forecasts anchored at 3% inflation in future meetings. Ongoing collaboration with the National Treasury to finalize target reform and maintain consistently low inflation continues.

However, he clarified that the current target range remains unchanged.

The global challenges emphasize the necessity for domestic reform. “The Sarb’s primary role is to ensure price stability. We have an opportunity to secure low inflation and pave the way for sustainably lower interest rates,” he stated.

[MPC JULY ANNOUNCEMENT] The SA Reserve Bank’s Monetary Policy Committee has decided to lower the policy rate by 25 basis points to 7%, effective August 1. The decision was unanimous.

Full statement:

Watch the press conference:…

— SA Reserve Bank (@SAReserveBank) July 31, 2025

Investor and trader Simon Brown, host of the MoneywebNOW podcast, mentioned on social media platform X that the MPC seems to be targeting a 3% inflation rate now, reduced from the previous midpoint of 4.5% and at the lower end of the target range. “[Changing] the target appears to be moot,” he remarked.

‘There will always be shocks’

In response to media inquiries, Kganyago denied the notion that South Africa cannot adjust its inflation target due to economic shocks.

“Currently, while the mill is grinding, there exists an opportunity. Shocks will always happen – regardless of whether you target 3%, 4.5%, or range between 3% to 6%. Even if you aim for 2%, shocks will still be present,” he explained.

He asserted that countries with lower inflation targets often recover more quickly from economic shocks than those with broader or higher target ranges.

When questioned about the delay in implementing a lower inflation target, the governor acknowledged the complexities of policy reform.

“Changing policy is never simple,” he said. “There is no such thing as a costless policy. Avoiding decisions due to associated costs isn’t feasible. Sticking with the current target also incurs costs. The benefits outweigh the costs.”

“It is particularly difficult in our policy discussions when individuals state: ‘Thank you, I accept the benefits, but I don’t want the costs.’ That is not how it works in policymaking,” Kganyago concluded.

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