The South African Reserve Bank (SARB) has cut the repo rate by 25 basis points from 6.75% to 6.5% following the most recent rate cut in July 2017. The biggest contributing factors to the rate cut is the low inflation rate at 4.0% per annum as at the end of February coupled with Moody’s decision to maintain South Africa’s investment grade status and changing the outlook to ‘stable’.
However, it is worth noting that this rate cut contradicts the most recent move by the US Federal Reserve to hike rates by 25 basis points.
The rate cut offers a welcomed relief for South African consumers ahead of the looming 1% VAT increase. Investors view the rate cut as ‘growth positive’ for the South African economy that has experienced disappointing GDP growth in recent years. The significant progress made within South Africa in this quarter bodes well for promising economic growth prospects.