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Reserve Bank Govenor Kganyago cuts interest rates by 25 basis points

Reserve Bank Govenor Lesetja Kganyago.
Reserve Bank Govenor Lesetja Kganyago.
Image: TREVOR SAMSON/Financial Mail

The Reserve Bank delivered on South Africans' hope for a cut in interest rates yesterday, announcing a reduction of 25 basis points in the repo rate to 6.5%.

The rate cut offers some relief to consumers, who will have to contend with an increase in the value-added tax rate to 15% from 14% at the beginning of next month, and petrol price increase, including the fuel levy and Road Accident Fund increases announced in the Budget last month.

Minister of Energy Jeff Radebe has announced that the price of 95 octane petrol will go up by 72 cents and 93 octane petrol by 69 cents per litre next Wednesday.

The cut was neither a surprise nor a foregone conclusion, with Investec's Annabel Bishop putting the odds at 50-50, and saying the market was pricing in a 40% chance of the cut.

Economic growth that came in better than expected in the fourth quarter, and Moody's decision to leave SA's credit rating one notch above junk and improve its outlook to stable, were among the factors in favour of a cut.

"The domestic growth outlook is more positive but still challenging," Reserve Bank governor Lesetja Kganyago said yesterday.

"Growth in the fourth quarter surprised significantly to the upside, and there are signs of increased business confidence."

The bank's monetary policy committee last cut rates in July last year, which was the first cut in five years and took the repo rate to 6.75%.

That cut came as a surprise, and marked the start of an easing cycle, but an expected cut in September did not materialise.

Yesterday's cut is not generally seen as a sign of further cuts to come. - BusinessLIVE

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