Bottom Line
- The SARB resumed its monetary policy easing cycle, cutting the Repo Rate by 25bp to 7.25% at its May MPC meeting. The vote among MPC members was split 5-1, with the dissenting voice favouring a 50bp rate cut.
- The SARB lowered its inflation forecasts through 2027. It now expects inflation to average 3.2% in 2025 (down from 3.6%), and 4.2% and 4.4% in the following two years (previously 4.5% for both). The revision is due to a stronger exchange rate, lower global oil prices, and the cancellation of planned VAT increases.
- The domestic growth forecast for 2025 was revised lower once again to 1.2% (prior: 1.7% and 1.8% in January). Economic growth is expected to remain weak at 1.5% in 2025 and 1.8% in 2027.
Analysis
- Once again, Governor Lesetja Kganyago kicked off the announcement by highlighting uncertainties abroad that cloud the global and domestic economic outlooks. Although conditions have improved since early April, the SARB still expects that global economic growth will be weaker than forecast in March.
- This weaker global growth outlook translated into downward revisions for South Africa’s economic outlook. While there is no official Q1 GDP data yet, the mining and manufacturing figures we have seen so far suggest that the economy struggled, and unemployment levels rose.
- The lower growth forecasts mean that risks are now assessed as balanced. The SARB notes that the outlook for structural reforms remains positive. However, even if we do see some of the GNU promises fulfilled, they will take time to significantly impact the economy. Therefore, South Africa looks set to remain in a phase of low growth for some time to come.
