South Africa Central Bank Cuts Interest Rates for Third Time, But Inflation Risks Rise
South Africa's central bank has lowered borrowing costs for the third consecutive meeting, bringing its benchmark interest rate to 7.5%. Despite the cut, the bank warned that risks to the inflation outlook have increased.
The Monetary Policy Committee (MPC) voted 4-2 to reduce the key rate by 25 basis points. Only one analyst had predicted a larger 50-point cut.
Governor Lesetja Kganyago noted that inflation currently appears well contained, but the medium-term outlook is uncertain due to external risks. The bank estimates inflation will average 3.9% this year and 4.6% in 2026.
The decision comes amidst concerns over potential trade tariffs threatened by US President Donald Trump. The rand has weakened against the dollar since Trump's return to office, and further depreciation could push up import costs and challenge the bank's inflation projections.
The bank's cautious approach is reflected in its decision to make rate decisions on a meeting-by-meeting basis, with no forward guidance or pre-commitment.
Despite the concerns, the bank raised its economic growth estimate for this year to 1.8% from 1.7%. The rand strengthened slightly after the announcement, trading 0.5% stronger at 18.4388 per dollar.