Reserve Bank cuts interest rates to 7% in widely expected decision
The
Governor
Thursday's cut was the second consecutive one this year. The announcement was delivered against the backdrop of global uncertainty as the tariffs announced by US President Donald Trump are set to kick in on 1 August.
South Africa will be faced with a
'The United States paused tariff increases in April, but that pause expires tomorrow, and many countries do not yet have new trade deals,' Kganyago said.
Global oil prices have also fluctuated due to the conflict in the Middle East, while the tariffs will affect trade costs with other countries. Economists have also said it will affect local growth but the governor said the global economy has shown 'resilience' in the face of these tariffs.
'To date, global economic activity has been broadly resilient to these stresses. The world growth outlook is largely unchanged from our last meeting. But there are risks that permanently higher tariffs, or adverse geopolitical developments, could cause more disruption to the global economy than we have seen so far this year.'
The Reserve Bank revised its economic growth prospects for South Africa downward on the back of the tariffs, and the slow growth reported during the first quarter of 2025, which was only 0.1%, and in line with its earlier expectations.
'Along with an assumption of higher US tariffs on South Africa, this has caused us to mark down our 2025 growth forecast. The economy's underlying growth trend remains low, mainly due to persistent supply-side problems, for instance in logistics,' Kganyago said, adding that high uncertainty and low business confidence was also affecting productivity in the country.
The Reserve Bank is, however, cautiously positive about growth picking up in the coming years, supported by ongoing structural reforms, he added.
South Africa's
'The South African Reserve Bank has been more cautious than some of its global peers, but this cut suggests that inflation is now firmly anchored and opens the door for a more flexible approach going forward,' said Maarten Ackerman, the chief economist at Citadel.
'This move signals that the [South African Reserve Bank] is comfortable with the inflation trajectory and is willing to provide support to the economy, as long as price stability remains intact.'
The Reserve Bank has also been considering scenarios where the
'It is important to sustain this progress and to minimise uncertainty about the longer-term objectives of monetary policy,' Kganyago noted.
'Therefore, the [monetary policy committee] now prefers inflation to settle at 3%. In line with this, we have decided to aim for the bottom of our inflation target range, of 3 to 6%.'
'We welcome the recent moderation in inflation expectations and would like to see expectations fall further. This would expand policy space and make our framework more robust to shocks. We will use forecasts with a 3% inflation anchor at future meetings.'
Kganyago told a media briefing that the central bank had not received confirmation from the finance ministry on the decision to lower the target range.
'The South African Reserve Bank will also continue working with the national treasury to
complete target reform and achieve permanently low inflation,' he added.
Ackerman said there was a probability of at least one more interest cut before the end of the year.
'Beyond that, we expect the Reserve Bank to pause and reassess the data, particularly inflation trends and global developments,' he said.
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