Reserve Bank Cuts Interest Rates By 25 Basis Points

The SA Reserve Bank's monetary policy committee has unanimously voted to reduce the repo rate from 6.5% to 6.25%. As a result of the cut the prime rate will fall to 9.75%. 

The repo rate is the benchmark interest rate at which the Reserve Bank lends money to other banks. Before Thursday, the last time the bank changed the rate was in July 2019, when it was cut by 25 basis points to 6.5%. The rate stayed unchanged at 6.5% at the MPC's two previous meetings in September and in November.

The announcement that the rate would drop by 25 basis points was made by the central bank's governor Lesetja Kganyago in Pretoria on Thursday afternoon. Kganyago said the decision was unanimous. 

The governor painted a bleak picture about the state of SA's struggling economy. He said electricity supply constraints would keep economic activity muted, while business confidence remained weak.  

The bank now estimates that SA's GDP will only expand by 0.4% in 2019. GDP outlooks for 2020 and 2021 were also downgraded to 1.2% and 1.6%. 

Ahead of the announcement on Thursday, some analysts had predicted that the rate would remain unchanged at 6.5%.  The decision was "not as the market expected," said TreasuryONE in a note to clients.