By Sfundo Parakozov, Kopano Gumbi and Alexander Winning
PRETORIA (Reuters) -South Africa’s central bank paused its rate-cutting cycle on Thursday as risks stemming from U.S. President Donald Trump’s global trade war and the country’s deadlocked national budget overshadow its success keeping inflation low.
The South African Reserve Bank’s split decision to keep the repo rate at 7.50% was in line with the median forecast of economists polled by Reuters and follows rate cuts at the previous three monetary policy meetings.
Four Monetary Policy Committee members supported an unchanged stance and two preferred a 25 basis point cut.
“The global economy is not on a stable footing and there are also domestic uncertainties, … this calls for a cautious policy approach,” Governor Lesetja Kganyago told a press conference.
Annual inflation was unchanged at 3.2% in February, staying near the bottom of the central bank’s target range of 3% to 6%.
The rand has proved resilient so far this year, gaining more than 3% against the U.S. dollar despite relations with the Trump administration souring badly over South Africa’s land reform policies and genocide case against Washington’s ally Israel at the World Court.
The most contentious part of the budget, which had to be revised once already and does not yet have enough support in parliament to pass, is a proposed increase in value-added tax of 1 percentage point spread over two years, which is expected to add to inflation.
“This budget just came through, and it comes through with a fiscal profile which does have some impact, which might have elements that will filter into country risk,” Deputy Governor Fundi Tshazibana told reporters.
The central bank said on Thursday that the uncertain global situation made it consider several external scenarios.
One involved South Africa losing its preferential trade status under the U.S. African Growth and Opportunity Act (AGOA), in which exports would be weaker and growth slightly lower.
On Thursday the bank marginally reduced its 2025 growth forecast to 1.7% from 1.8%.
Some analysts thought the bank had missed an opportunity to cut rates given rand stability and the current level of inflation. Others praised the bank’s conservative approach.
(Additional reporting by Bhargav Acharya;Writing by Alexander Winning; Editing by Susan Fenton)
