On November 18, 2024, economists anticipated a repo rate cut by the South African Reserve Bank (SARB) during its upcoming Monetary Policy Committee (MPC) meeting, despite concerns over potential inflationary impacts from Donald Trump's recent electoral victory in the United States [7cd7957e]. This anticipated cut follows a trend where the inflation rate in South Africa has dropped for the fourth consecutive month as of September, with forecasts suggesting it could fall to about 3.3% in October [7cd7957e].
The SARB's inflation targeting aims to maintain consumer price inflation between 3% and 6%, and analysts from various financial institutions, including the Bureau for Economic Research (BER) and First National Bank (FNB), expected a 25 basis points reduction in the repo rate [7cd7957e]. However, the MPC ultimately decided to cut the repo rate by only 25 basis points, a move that some economists, including Professor Bonke Dumisa, deemed insufficient, arguing that a 50 basis points cut would have been more appropriate given the inflation drop from 3.8% in September to 2.8% in October [08617480].
SARB governor Lesetja Kganyago stated that the decision for a smaller cut was unanimous and did not consider a larger reduction, reflecting a cautious approach amid global macroeconomic uncertainty [08617480]. This sentiment was echoed by Jee-A van der Linde from Oxford Economics Africa, who forecasts a total of 75 basis points of cuts in 2025, indicating a more gradual easing of monetary policy [08617480].
Despite the positive outlook on inflation, the potential risks associated with Trump's policies could pose challenges for global trade and inflation dynamics, adding a layer of uncertainty to the SARB's decision-making process [7cd7957e]. This context is critical as South Africa navigates its economic landscape, which has been marked by high inflation and rising living costs.
In a previous announcement on September 23, 2024, SARB had already reduced the repo rate by 25 basis points to 8%, aiming to stimulate the economy and alleviate food prices. However, this move was met with skepticism from the public, with many questioning its effectiveness in addressing the ongoing cost of living crisis [42c30012].
Mervyn Abrahams from the Pietermaritzburg Economic Justice and Dignity Group highlighted that despite the rate cut, food prices remained excessively high, causing frustration among households [42c30012]. Social media reactions reflected this disbelief, with users expressing doubts about the impact of the repo rate cut on their daily expenses [42c30012].
As the SARB prepares for its next meeting, the interplay between domestic economic conditions and international political developments, particularly Trump's influence, will be crucial in shaping the future of South Africa's monetary policy. Furthermore, analysts like KPMG's Frank Blackmore and FNB CEO Harry Kellan have welcomed the cut, predicting it will boost consumer confidence, while Mamello Matikinca-Ngwenya warns of pressures from US Federal Reserve policies on emerging markets [08617480].