The SA Reserve Bank (Sarb) kept the repo rate unchanged at 7.50% citing rising inflation risks, global economic uncertainty and the effect of fiscal policy changes.
The decision, announced at the monetary policy committee (MPC) meeting on Thursday, aligns with expectations the Bank would take a cautious approach in response to elevated inflation risks and a weaker growth outlook.
Four of the six members of the Monetary Policy Committee voted to keep the interest rate unchanged.
The MPC’s decision reflects ongoing global economic volatility, with rising trade tensions, geopolitical shifts, and persistent inflation risks in major economies.
In the US, the Federal Reserve has maintained high interest rates, with policymakers signalling patience before easing monetary policy.
While markets still anticipate US rate cuts later this year, core inflation in advanced economies, including the US, Eurozone, and UK, remains above 2%, reducing expectations for rapid global monetary easing, said Reserve Bank governor Lesetja Kganyago.
“Some policy adjustments by major central banks are still expected this year, but rates are likely to remain high for longer, given new inflation risks,” he said.
The rand’s exchange rate remains a critical factor in the MPC’s decision-making, as a weaker currency raises import costs, particularly for fuel and food, intensifying domestic inflationary pressures.
Kganyago said that the MPC explored scenarios built around changes in SA's access to US markets: “If SA were to lose AGOA benefits, we see some weakening of exports and slightly lower growth,” Kganyago said.
“If that were compounded with tariffs on SA exports, the effects would be larger. The most severe scenario we considered added a sentiment shock, with a weaker rand, higher domestic inflation, and therefore a tighter policy stance. In this case, growth would be lower by 0.7 percentage points, with the exchange rate depreciation offsetting some of the tariff effects on exports.”
But Johann Els, Old Mutual chief economist, is not convinced. “It boggles my mind why they didn't cut rates,” he said.
“Of course you can argue that the focus on global risks is so strong that that's why they didn't cut but those global risks are not reflecting in the rand. The rand is not reacting to that,” he said, adding that the rand is outperforming many other emerging currencies.
He also believes the AGOA factor has been priced into markets already, adding: “I think this was a missed opportunity.”
While SA’s economy showed some signs of recovery in the fourth quarter of 2024, the overall growth picture remains weak, the MPC noted.
Kganyago mentioned that growth picked up in the fourth quarter of last year. “As expected, the uptick was led by the household sector, boosted by lower inflation and withdrawals from the two-pot pension system,” Kganyago said.
“That said, the overall growth picture was disappointing, with other sectors showing weakness. Growth for 2024 as a whole was 0.6%, marginally below our expectations, and slightly worse than in 2023.”
“We have now revised down our 2025 growth forecast slightly, to 1.7%, while leaving the outer years unchanged. We attribute lower growth partly to subdued demand, and partly to lingering supply-side fragilities,” Kganyago said.
The latest MPC report projects potential GDP growth at just 1.4% in 2025, rising to 2.0% by 2027.
The Bank’s inflation outlook remains broadly stable but tilted to the upside, Kganyago said.
The latest projections now put headline inflation at 3.6% in 2025 and 4.5% in 2026, slightly lower than previous estimates, reflecting better fuel price assumptions and lower-than-expected electricity tariff increases.
Despite these downward revisions, the Bank remains cautious about inflation risks. While goods inflation remains subdued, services inflation is rising, signalling underlying price pressures.
The March forecast report shows that international consumer prices are projected to rise by 2.6% in 2025, slightly higher than previous forecasts, indicating that imported inflation could become a concern if the rand weakens further.
Additionally, global commodity prices are now expected to decline more slowly than previously forecast, limiting recent disinflationary benefits for SA.
Fiscal policy also played a key role in the MPC’s decision. The upcoming 0.5 percentage point VAT increase in May is expected to add about 0.2 percentage points to headline inflation.
While this effect is partially offset by lower electricity tariff adjustments, the Bank remains concerned about the cumulative effect of fiscal policies on price stability.
FNB CEO Harry Kellan said they expected consumers to remain under some pressure following the recent budget speech.
“Household budgets will come under pressure with the increase in VAT and with no relief for personal income taxes, as the tax brackets remained unadjusted for inflation,” Kellan said.
“Against this backdrop, we welcome SARB’s decision to leave rates unchanged as this creates a measure of stability to counteract growing uncertainty in global markets,” he said.
The next MPC meeting is scheduled for May 29.
“There is a chance that the interest rate may be cut in May when there is more clarity about what is happening with inflation, the impact of the increased energy tariffs, President Donald Trump’s trade policies and the proposed VAT increase,” says Riaan Grobler, head of advisory services at Everest Wealth.
“It is now a case of wait and see regarding the impact of the Trump administration’s policies, including the possibility of higher inflation due to Trump’s trade tariffs.”
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