Repo rate decrease by 25 basis points hailed as relief to consumers

The Reserve Bank's decision to cut the repo rate by 25 basis points, bringing it to 7.25% has been welcomed as a positive move which will bring much relief to consumers. 

Governor Lesetja Kganyago on Thursday announced the second repo rate cut of the year, saying higher trade barriers and global uncertainty dampen the global growth outlook.

He said the monetary policy committee (MPC) had observed that inflation could be slower globally, given weaker world growth, and the bank expected global interest rates to slow during the year.

Mining and manufacturing data have been disappointing, and unemployment continues to rise. GDP projections are of 1.2% growth this year, increasing to 1.8% by 2027. The inflation forecast is revised downward due to lower oil prices.

“Against this backdrop, the MPC decided to reduce the policy rate by 25 basis points with effect from May 30. Five members favoured this action, while one preferred a cut of 50 basis points,” he said.

The announcement comes after CPI edged up to 2.8% last week, though it remains well within the mid-range of the target band. At the last MPC meeting in March, the repo rate was kept unchanged at 7.5%. This makes for a total of two rate cuts this year.

Inflation, globally and domestically, has defied the pressures of ongoing geopolitical conflicts, elevated prices, global trade fragmentation and protectionist trade policies, and has settled consistently.

He said while the inflation outlook remained benign, the MPC considered an adverse scenario characterised by upside risks, worsening trade tensions and rapid rand depreciation.

“This scenario showed how a country with some fundamental vulnerabilities, like South Africa, risks stagnation, with growth moving lower while inflation rises due to currency weakness. In these conditions, monetary policy tightens to stabilise the macro economy.”

The governor said that given the lower forecast, the MPC had assessed the risks to growth as balanced. The MPC reduced rates from 7.75% to 7.5% in January.

National Automobile Dealers' Association chairperson Brandon Cohen said:” This rate cut is a positive move at a time when South African consumers are under immense financial pressure.

“While it’s not a dramatic kick-start to the economy, it does serve as a much-needed nudge in the right direction.”

He said the “reduction in interest rates, although modest, could offer some short-term relief for stretched households — particularly with the fuel levy and other cost increases looming in June”.

“Even small savings on monthly bond repayments, credit cards, and vehicle finance do add up. They can make a meaningful difference for consumers who are having to make every rand count.

“Historically, it takes several months before we see the effects of a rate movement reflected in vehicle salesA rate cut helps to build consumer confidence and creates slightly more room for discretionary spending.”

Rhys Dyer, ooba Group CEO said the cut would make a big impact.

“First-time homebuyers are known to be typically rate-sensitive. Our latest data highlights that the recovery in activity in this key segment, triggered by initial interest rate relief, has now stalled at around 46.5% of the applications received in recent months.

“Following this rate cut, it will be interesting to see if the segment regains strength over the next few months. With competitive interest rates, a supportive fiscal environment and growing investor confidence, South Africa’s property market appears well-positioned for steady growth.”

FNB commercial senior economist John Loos said: “This most recent interest rate cut, after a pause in March, is expected to sustain that upward momentum in investor demand/sales in all 3 property classes into the 2nd half of 2025, where a further interest rate cut is expected.

“The cumulative interest rate cutting is expected to be a contributor to mildly accelerating economic growth in 2025 and beyond, which in turn is expected to lead to further commercial vacancy rate declines. That should translate into accelerating rental growth in commercial property markets and a consequently stronger net operating income growth rate.”