The South African Reserve Bank paused rate cuts, keeping the repo rate at 7.50%, due to global trade tensions and budget risks. Despite low inflation at 3.2%, uncertainties prompted a cautious stance. The rand remains resilient, gaining against the dollar amidst strained U.S. relations. The proposed VAT increase poses additional inflation risks.
On Thursday, the South African Reserve Bank decided to pause its rate-cutting cycle, maintaining the repo rate at 7.50%. This decision comes amidst challenges posed by U.S. President Donald Trump’s trade policies and uncertainties surrounding the national budget. The move aligns with economists’ predictions, following a series of rate reductions in prior meetings.
The vote reflected a division among members: four supported maintaining the rate, while two advocated for a 25 basis point reduction. Governor Lesetja Kganyago emphasized the need for cautious policy, citing instability in the global economy and domestic uncertainties.
In February, annual inflation remained steady at 3.2%, close to the central bank’s target range of 3-6%. Despite a strained relationship with the Trump administration over land reform and international legal issues, the South African rand has appreciated by more than 3% against the U.S. dollar this year.
A significant concern in the budget debate is a proposed increase in value-added tax. This tax proposal lacks sufficient legislative support, and its implementation over the next two years threatens to contribute to inflationary pressures.
In summary, the South African Reserve Bank’s decision to hold the repo rate steady reflects caution in response to global economic uncertainties and domestic challenges. With inflation stable yet vulnerable and political issues surrounding the budget looming, the bank remains vigilant in its monetary policy approach.
Original Source: money.usnews.com
