South Africa’s central bank announced a 25 basis point cut to its benchmark interest rate, reducing it to 7.75 percent on Thursday. This move reflects a cautious approach amid mixed economic data and global uncertainties.
The decision follows a significant drop in inflation to 2.8 percent in October, the lowest level since June 2020, during the pandemic. Despite this positive trend, Reserve Bank Governor Lesetja Kganyago warned that inflation could rise again due to potential increases in the costs of food, electricity, water, insurance premiums, and wages.
While South Africa’s manufacturing sector has been underperforming, the mining sector showed strength, and the country’s unemployment rate dropped to 32.1 percent in the third quarter, down from 33.5 percent in the previous quarter.
Kganyago also expressed optimism about the economy’s future growth, driven by ongoing structural reforms in key areas like electricity and transport infrastructure. However, he emphasized the uncertain global economic environment, citing the risk of higher global interest rates and the impact of the recent depreciation of the rand.
Additionally, concerns about global protectionism, especially in the context of potential policy shifts under an incoming U.S. government, were noted as factors influencing South Africa’s economic outlook. Kganyago emphasized that global trade remains crucial for economic growth, and any disruption could have significant repercussions.