SARB Disappoints Borrowers by Holding South African Interest Rates Steady at 7%
The South African Reserve Bank kept interest rates unchanged on Thursday, sparking debate over whether the decision missed a chance to...
Quick overview
- The South African Reserve Bank decided to keep the repo rate unchanged at 7%, sparking debate over missed opportunities to support economic growth.
- Inflation concerns were prioritized, with expectations for headline inflation to rise toward 4% and electricity price inflation forecasted to increase significantly.
- Economists and property sector leaders expressed disappointment, arguing that lower rates could have alleviated pressure on households and boosted confidence.
- The SARB's decision reflects a cautious approach to managing inflation risks while balancing the need for economic stimulation amid structural inefficiencies.
The South African Reserve Bank kept interest rates unchanged on Thursday, sparking debate over whether the decision missed a chance to support growth and struggling consumers.
SARB Holds Firm at 7%
At its Monetary Policy Committee (MPC) meeting in Pretoria, Governor Lesetja Kganyago announced that the repo rate will remain at 7%, with the prime lending rate fixed at 10.5%. The decision comes after the SARB previously cut rates in July, but this time policymakers opted for caution in the face of rising global uncertainty and domestic headwinds—including U.S. tariffs on South African imports.
Inflation Concerns Take Priority
Kganyago highlighted that headline inflation is expected to climb toward 4% in the coming months. The SARB also revised its electricity price inflation forecast sharply higher, to around 8% from 6%, following Nersa’s tariff adjustments. With fuel, meat, and vegetable prices still elevated, the central bank signaled that holding rates steady was the safer option, but that doesn’t make much sense, because lower borrowing rates would help the South African consumer. The inflation outlook now sees averages of 3.4% in 2025, 3.6% in 2026, and eventually 3% in 2027.
Market and Property Sector Reaction
Economists largely anticipated a hold, though many were hoping for at least a 25 basis point cut—particularly after the U.S. Federal Reserve lowered rates this week and August’s local inflation cooled to 3.3%. Property and mortgage industry leaders voiced disappointment. Rhys Dyer, CEO of ooba Group, argued that households remain under pressure, while Samuel Seeff of the Seeff Property Group said the SARB had “lost an opportunity” to boost confidence and growth. Seeff emphasized that returning rates closer to pre-pandemic levels would provide meaningful relief.
Modest Growth Outlook
Despite weak second-quarter GDP growth of only 0.8%, the SARB upgraded its 2025 growth forecast slightly to 1.2% from 0.9%. Still, the pace remains modest compared to the country’s needs. The bank cautioned that structural inefficiencies, particularly in administered prices, continue to limit growth and erode purchasing power—problems that monetary policy alone cannot solve.
Inside the MPC Vote
The decision was not unanimous: four members voted to hold rates, while two favored a cut. Kganyago stressed that while electricity prices have influenced inflation forecasts, they are not the sole driver of consumer strain. Nevertheless, given sticky price pressures, the SARB concluded that maintaining the repo rate was the prudent course of action.
Conclusion: The central bank’s stance reflects a delicate balancing act—managing inflation risks while resisting calls to stimulate a sluggish economy. For many South Africans, particularly homeowners and borrowers, the decision represents a missed chance for relief, though the SARB maintains that long-term stability must take precedence.
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