SARB governor, Lesetja Kganyago. Getty Images
  • It was a close shave, but SA got an interest rate cut on Wednesday.
  • The Reserve Bank governor says the debate was heated, with three of the seven monetary policy committee members voting against a cut in interest rates.
  • The market anticipated a cut – and would have been disappointed had it not come.

South Africa’s monetary policy committee (MPC) cut South Africa’s key interest rate by 25 basis points to 6.50% on Wednesday.

On a home loan of R2 million at the prime rate, that could save you more than R330 a month.

The rate cut came just in time to counter a painful VAT hike (from 14% to 15%), which kicks in at the start of April. 

SA Reserve Bank governor Lesetja Kganyago said there was "a very heated" debate about the decision. He added that a cut of 50 basis points was never on the table. 

In the end four MPC members wanted a cut, but three voted against it.

International Monetary Fund executive Fundi Tshazibana became the seventh member of the MPC last month. Apart from Kganyago, the other members are Daniel Mminele, Francois Groepe, Kuben Naidoo, Brian Kahn and Rashad Cassim.

An interest rate cut was expected after February's inflation number came in at only 4%. Kganyago said on Wednesday that the VAT increase means that inflation will pick up from this low point. He expects that VAT will add 0.6 percentage points to the inflation rate in coming months. 

The rand has also been strong and stable following the decision by Moody's to keep SA at an investment-grade rating.

A strong rand means that imported prices (particularly of fuel) will be contained.

The Reserve Bank does not expect the rand to strengthen much further. 

The repo rate. Source: SA Reserve Bank

The global economy and international inflation remain favourable, Kganyago said. But he warned that this has been put at risk by the US government, which may trigger a global trade war

The domestic economic outlook remains challenging, but is looking more positive, he added. The Reserve Bank expects a growth rate of 1.7% for this year, compared to 1.4% last year. The improved outlook is driven by improved consumer and business confidence. 

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