South African Reserve Bank (SARB) Governor Lesetja Kganyago stated that South Africa’s interest rate decisions would be driven by domestic factors, rather than aligning with the global trend of rate cuts seen in emerging markets. Despite criticism for not cutting rates more aggressively, Kganyago emphasised that “domestic idiosyncrasies” would guide policy choices. The SARB recently lowered the borrowing rate by 25 basis points to 8% in September 2024, the first cut in four years, following a prolonged period of elevated rates.

The decision was supported by declining inflation, with the headline inflation rate falling to 4.4% in September, below the midpoint of the SARB’s target range of 3% to 6%. Core inflation, excluding volatile items like food and energy, also showed a slowdown, suggesting that disinflation is well underway.

Kganyago pointed out that South Africa’s rate-hiking trajectory, which began in 2022, has been more moderate compared to other emerging markets like Brazil and Colombia, which had raised rates into double digits. Economists like Nedbank’s Liandra da Silva noted that South Africa’s economy is showing signs of recovery, driven by stable electricity supply, improved consumer demand, and easing political risks after the formation of a government of national unity (GNU) in May 2024.

Looking ahead, inflation is expected to remain near the SARB’s 4.5% target, creating room for further rate cuts. Economists forecast the repo rate to decrease to 7.75% by the end of 2024 and 7% by the end of 2025, which would reduce debt costs and boost consumer spending.