South Africa’s central bank halted rate cuts, maintaining the repo rate at 7.50% due to trade and budget risks. Inflation remains steady at 3.2%, while the rand strengthened against the U.S. dollar. The contentious increase in VAT poses additional risks to budget stability.
On Thursday, South Africa’s central bank opted to pause its rate-cutting cycle amid external trade risks and internal budgetary challenges, despite maintaining low inflation levels. The decision to keep the repo rate at 7.50% was predictable, aligning with economists’ forecasts. While four members of the monetary policy committee favored maintaining the rate, two members advocated for a 25 basis point reduction.
Governor Lesetja Kganyago emphasized the need for caution due to an unstable global economy and domestic uncertainties. The nation’s annual inflation held steady at 3.2% in February, situated near the central bank’s target range of 3% to 6%. Importantly, South Africa’s rand has displayed strength against the U.S. dollar, gaining over 3% year-to-date, despite deteriorating relations with the Trump administration over contentious policies.
One significant aspect of South Africa’s currently contentious budget is a proposed increase in value-added tax. This increase, which requires parliamentary approval, could potentially drive inflation higher and has not yet received the necessary legislative backing.
Overall, the decision reflects a cautious stance by the South African Reserve Bank amid both international trade tensions and local economic uncertainties, prioritizing stability over immediate rate cuts.
In summary, the South African Reserve Bank’s decision to pause rate cuts reflects ongoing concerns regarding external trade threats and internal budgetary instability, despite exhibiting low inflation. Governor Kganyago’s remarks highlight the necessity for a cautious approach in light of economic uncertainties, while the stability of the rand provides some reassurance in an otherwise challenging context. The proposed VAT increase further complicates the budget situation, indicating potential inflationary pressures ahead.
Original Source: money.usnews.com
