By Bhargav Acharya, Kopano Gumbi and Tannur Anders
PRETORIA (Reuters) -South Africa’s central bank trimmed its main lending rate as expected on Thursday, its third cut in a row, but it placed emphasis on the uncertain global backdrop and said it had modelled the potential impact of a trade war.
The repo rate was reduced by a further 25 basis points (bps) to 7.50%, in a split decision by the Monetary Policy Committee, with four members preferring a 25 bps cut and two supporting an unchanged stance.
“The committee ultimately agreed that it was possible to reduce the degree of policy restrictiveness, making the stance somewhat more neutral. However, all members were concerned about the uncertain global outlook,” the central bank said in a statement.
Committee members spent time reviewing a trade war scenario featuring a universal increase of 10 percentage points in U.S. tariffs, with retaliatory measures by other countries, the statement said.
Under that scenario, the bank’s model projected the rand depreciating to nearly 21 to the dollar and domestic inflation reaching 5%.
The rand was trading around 18.44 to the dollar after the rate announcement.
Inflation in Africa’s most industrialised economy is well within the central bank’s 3%-6% target range, averaging 4.4% in 2024, just below the midpoint of the band the bank aims for.
Inflation expectations of analysts, business people and trade union officials, which the South African Reserve Bank (SARB) tracks closely, have also improved, largely aligning with the midpoint.
Although all analysts polled by Reuters earlier this month expected the 25 bps rate cut, many believe future cuts are likely to be gradual as the SARB waits to see how U.S. President Donald Trump’s policies take shape.
Administered prices, or prices for services that the government regulates such as electricity and water provision, are a domestic risk.
The energy regulator on Thursday awarded state power utility Eskom a 12.7% tariff increase for the financial year that starts in April, whereas Eskom had sought an increase of more than 36%.
Tertia Jacobs, an economist at Investec, said the SARB’s tone on Thursday was hawkish, casting doubt over what the next rate decision would be.
“A March rate cut at this point in time, whether or not inflation remains contained, is debatable,” she said.
(Additional reporting by Sfundo Parakozov in Johannesburg;Editing by Alexander Winning and Barbara Lewis)
