Lesetja Kganyago, Governor of the South African Reserve Bank, announced a policy rate cut by 25 basis points of the repo rate, to 8% per annum, with effect from 20 September.
The repo rate was at 8.25%, while the prime lending rate was 11.75%, since 2021, when the Monetary Policy Committee (MPC), raised rates by 475 basis points, marking a 15-year high.
Speaking about the decision that led to the cut by 25 and not 50 basis points, Kganyago said this less restrictive stance, was consistent with sustainably lower inflation over the medium term.
He said various factors led to the decision, to hopefully get inflation averaging around 4,6% by the end of 2024.
These are global inflation, that is slowing and nearing targets, against a backdrop of major central banks, having lowered rates, including the European Central Bank cut last week, the Bank of England eased in August, and the US Federal Reserve reduced rates on Wednesday evening. The US dollar has also cooled off in recent months, providing some respite for other currencies, including the rand.
Kganyago said “central banks are moving carefully, and policy stances remain relatively tight. Economic activity in major economies has been resilient, even as inflation eases. Underlying measures of inflation have also fallen less than headline, primarily because of elevated housing inflation and robust wage growth.”
He said another contributing factor, to the cautious cut, is the difficult and unpredictable geopolitical environment, with risks of inflationary shocks through trade restrictions and supply chain disruptions.
” Overall, global conditions have become more favourable, but there are still risks. A ‘soft landing’ is looking more likely, after the worst inflation surge in a generation, but it is not inevitable. The financial market volatility of early August was a reminder of the fragilities and uncertainties in the system.”
There is concern of investment recovery, to provide economic growth.
What does a 25 bps cut mean for homeowners?
(My Properties summary via social media)
” Currently, a R1 million bond over 20 years at the prime lending rate (11.75%) costs R10 837 per month. If the rate is cut to 11.50%, the monthly repayment drops to R10 664, saving R173 each month.
Over 20 years, this equates to a total savings of R41 466, assuming no further rate changes.
However, financing a R1 million bond doesn’t just cost R1 million. At the current rate, the total repayment is R2 600 880. With a 25 bps reduction, the total drops to R2 559 360.”
Picture of the Governor, Lesetja Kganyago, SARB