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The South African Reserve Bank (SARB) has reduced the repo rate (the interest rate at which banks borrow from the Reserve Bank) by 25 basis points (0.25%), to 6.5%, which sees the prime lending rate for customers move to 10% from 10.25%.
The decision comes as the consumer price index (CPI) measure of inflation has fallen to 4%, which is well within the SARB’s targeted range of 3% to 6%. While the SARB’s mandate is to target inflation, the decision to cut would have also considered economic growth within the country, with lower rates being more supportive. Recent news that Moody’s has decided to keep South Africa’s local currency credit rating at investment grade would have also removed a near-term headwind for the Reserve Bank in terms of inflation (spurred from currency depreciation and an increased cost of borrow).
Looking forward, the SARB expects inflation to average 4.9% in 2018, and 5.2% in 2019. The SARB expects economic growth of 1.7% in 2018, and 1.5% in 2019.
The rand has had a relatively subdued reaction to the news, as 0.25% remains a marginal move and was widely expected.