The South African central bank paused its rate-cutting cycle, maintaining the repo rate at 7.50% due to global trade risks and domestic budget uncertainties. This decision aligns with economists’ expectations. Inflation remains at 3.2%, while the rand has gained strength this year. However, proposed tax increases pose risks to inflation and budget approval.
On Thursday, the South African central bank decided to pause its rate-cutting cycle, primarily due to risks associated with the global trade conflict initiated by U.S. President Donald Trump and uncertainties in the national budget. This decision maintained the repo rate at 7.50%, aligning with the median forecasts from economists polled by Reuters and following three consecutive rate reductions in previous monetary policy meetings.
The central bank’s decision resulted from differing opinions among its members, where four members favored maintaining the rate, while two advocated for a reduction of 25 basis points. The Governor, Lesetja Kganyago, remarked that “the global economy is not on a stable footing and there are also domestic uncertainties, … this calls for a cautious policy approach.”
As of February, annual inflation remained stable at 3.2%, situated near the lower boundary of the central bank’s target range, which is 3% to 6%. The South African rand has shown resilience, appreciating over 3% against the U.S. dollar in 2025, despite deteriorating relations with the Trump administration regarding South Africa’s land reform and legal actions against Israel at the World Court.
A significant concern within the national budget is a proposed 1% increase in value-added tax, intended to be implemented over two years, which could potentially exacerbate inflation. However, this proposal currently lacks sufficient parliamentary support to be enacted.
In conclusion, the South African Reserve Bank’s decision to hold interest rates steady reflects ongoing concerns about both global trade tensions and domestic economic uncertainties. The unchanged inflation rate and the rand’s strength signify areas of resilience, yet proposed tax increases present challenges for the nation’s financial stability. Overall, the bank’s cautious stance underscores the importance of monitoring both international and local economic factors in its future policy approaches.
Original Source: money.usnews.com
