South African Reserve Bank Governor Lesetja Kganyago announced on Thursday that the Monetary Policy Committee (MPC) has decided to reduce the interest rate by 25 basis points, citing a stronger rand and easing inflation as the primary drivers behind the decision.
The rate cut brings the prime lending rate down to 10.75%, depending on individual credit risk. For consumers, this adjustment translates into meaningful savings — approximately R2,000 annually on a R1 million home loan over 20 years, and around R612 a year on a R400,000 vehicle loan.
During the briefing, Kganyago also proposed a revision to the inflation targeting framework, suggesting a shift from the current 3% to 6% range to a more focused 3% target. This comes as April’s inflation rate was recorded at 2.8%, slightly above March’s 2.7%, but still below the lower bound of the Reserve Bank’s existing target range.
The Producer Price Index (PPI), often viewed as an early indicator of consumer inflation, remained steady at 0.5% year-on-year in April. Although unchanged from March, it came in slightly higher than the forecast by economists surveyed by Bloomberg.
Despite the positive macroeconomic signals, the Reserve Bank revised its growth outlook for 2025 downward. The central bank now expects gross domestic product to expand by just 1.2% — lower than the 1.4% forecast by Finance Minister Enoch Godongwana earlier this month during his National Budget speech.
Kganyago noted that while many countries have begun reducing interest rates in response to easing inflation, the United States remains an exception. He also pointed to weaker performance in sectors such as mining and manufacturing, which have weighed on South Africa’s broader economic prospects.
The rand has been trading below R18 to the US dollar since 19 May, its strongest performance since early December 2024 — before it began weakening in the lead-up to Donald Trump’s inauguration as the 47th US President in January 2025.
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