South Africa Cuts Interest Rate to 7.75%

South Africa’s central bank on Thursday reduced its benchmark interest rate by 25 basis points to 7.75 percent, taking a cautious approach in response to mixed economic data and global uncertainties.

This comes after a fall in inflation in October to 2.8 percent, its lowest level since June 2020 during the Covid-19 pandemic.

Inflation appears well contained in the near term, South Africa’s Reserve Bank governor Lesetja Kganyago told reporters.

However, it was “highly uncertain” in the medium term given the possibility of higher costs of food, electricity, and water, as well as insurance premiums and wage settlements.

While recent manufacturing data was subdued, mining was strong and unemployment had shifted lower to 32.1 percent in the third quarter from 33.5 percent in the previous quarter, Kganyago said.

South Africa’s economic growth could be higher from next year, given ongoing structural reforms including in the electricity and transport networks, he said.

“I think 25 basis points are cautious, and the environment is uncertain, and it calls for caution,” he said.

“Global interest rates could well shift higher again and the recent rand depreciation demonstrates how rapidly changes in the global environment can affect South Africa.”

Kganyago cited higher-than-expected inflation in the United States and Britain.

Another contributing factor was uncertainty about the policies that the incoming government of Donald Trump would adopt.

Generally, there is “a rise about protectionism around the globe, and there is a concern that the protectionism that we are seeing could impact global trade, and global trade is the lifeblood of the global economy,” Kganyago said.