South African Reserve Bank (Sarb) Governor Lesetja Kganyago announced on Thursday that the repo rate would be cut by 25 basis points to 6.75%.
The repo rate is the interest rate at which the Sarb lends money to commercial banks.
The Monetary Policy Committee has decided to cut the interest rates, with effect from 21 July 2017.
Economist Mamello Matikinca says consumers may pay less on outstanding debt or big purchase items, as a result.
She explains that banks had not anticipated the surprise cut.
I think that the timing was a bit surprising on our side. We had anticipated that the governor dovish statement to prepare the market for the cut.— Mamello Matikinca, Economist at FNB
According to Matikinca, the Reserve Bank has made it clear that they are less worried about inflation than earlier this year.
She explains how SARB downwardly revised the inflation forecast from May.
Below are the inflation forecast changes:
- 2017: consumer inflation will average 5.3% (from 5.7% forecast in May )
- 2018: 4.9% (from 5.1% forecast in May)
- 2019: 5.2% (from 5.3% forecast in May)
At the same time, Matikinca says 25 basis won't have a huge impact on structural issues such as unemployment and will not impact economic growth or business confidence.
Take a listen to her explain: