South African Reserve Bank (SARB) Governor Lesetja Kganyago today announced a cut in the repurchase rate (repo rate) for the country.
Frank Blackmore, lead economist at KPMG told Business Report that the decision was taken as inflation moved below the central banks target range of 4.5%.
Blackmore said, There were votes for a larger reduction at the MPC meeting, the decision was taken to implement a 25 BPS reduction with one meeting of the MPC still to go in November this year, where the expectation is for a further 25% or even a 50 BPS reduction if the inflation rate is sustained in this period.
The governor made it clear they intend to continue with the interest rate reduction cycle until a repo rate of around 7% is reached, which translates to a prime rate of 10.5% and this will be important for consumers and businesses alike, meaning less of their income will go towards servicing debts and more could be spent in the economy, Blackmore said.
The importance of that is noted to projections of GDP growth where on an expenditure approach, private consumption expenditure accounts for around 65% of GDP and any increases in private expenditure can translate into higher growth in the second half of this year, and into next year as well, Blackmore further said.
