Good news for South Africans: Reserve Bank cuts Interest rates

Reserve Bank governor Lesetja Kganyago announced an interest rate cut of 25bps on Thursday

South Africa's Reserve Bank on Thursday reduced interest rates from 6.5% to 6.25%., citing concerns about power blackouts, weak rand, and labor conflicts.

In a move that could offer some respite to SA’s battling consumers Reserve Bank governor Lesetja Kganyago announced an interest rate cut of 25bps.

The repo rate is the benchmark interest rate at which the Reserve Bank lends money to other banks.

The last time before Thursday when the bank changed the rate was in July 2019, when it was cut by 25 basis points to 6.5%. The rate stayed unchanged at 6.5% at the MPC's two previous meetings in September and in November.

The cut, was a possibility as SA’s growth has flagged and inflation has slowed to its lowest levels since December 2010. However many economists believed the Bank would stay hawkish as SA confronts a difficult February budget and the possibility of a ratings downgrade by Moody’s Investors Services.

The bank now estimates that SA GDP will only expand by 0.4% in 2019 (from 0.5%) thanks largely to electricity supply constraints. The forecasts for 2020 and 2021 have also been lowered to 1.2%(from 1.4%) and 1.6% (from 1.7%), respectively.

Electricity supply constraints will likely keep economic activity muted in the near term, Kganyago said in the MPC statement.