Johannesburg, May 29 (Xinhua) — The Monetary Policy Committee of the South African Reserve Bank (central bank) announced on Thursday that it would cut the benchmark interest rate by 25 basis points to 7.25%, the lowest level since January 2023. This move aligns with the market’s general expectations.
South African Central Bank Governor Caniago stated at a press conference that the current inflation situation is generally under control. The consumer price index (CPI) increased by 2.8% year-on-year in April and has remained below the medium-term target value of 4.5% for nine consecutive months. As a result, the central bank has revised its inflation forecast for 2025 downward from 3.6% to 3.2%.
Caniago highlighted that the strengthening of the rand exchange rate and the decline in international oil prices have effectively mitigated the pressure from the increase in fuel tax in the fiscal budget. Additionally, the previously planned increase in value-added tax has been canceled, creating a favorable environment for the decline in inflation.
Despite the domestic inflation decline, the South African Central Bank has lowered its forecast for the country’s GDP growth in 2025 from 1.7% to 1.2%, citing ongoing uncertainties in the global economy.
Notably, the central bank explicitly stated at the meeting that it “prefers to lower the inflation target to 3%.” The current official inflation target range is 3% to 6%, with a median of 4.5%. The central bank believes this range is too high and too wide and is in discussions with the Ministry of Finance regarding adjustments to the target.
This development has garnered significant market attention. Analysts generally believe that if the inflation target is officially lowered, it will have a profound impact on the pace and adjustment space of future monetary policy formulation.
On the day of the announcement, the South African rand appreciated 1% against the US dollar during trading hours, closing at 17.80 rand to 1 US dollar. The yield on 10-year government bonds dropped 10 basis points to 10.23%, the lowest level since December of the previous year.
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