South Africa's central bank opted for another small cut to its main interest rate on Thursday, stressing a tough global backdrop and uncertain domestic outlook despite inflation falling below its target range for the first time in years.
The decision to lower the repo rate (ZAREPO=ECI) by 25 basis points (bps) to 7.75% was unanimous, with no discussion about a larger 50 bps cut, South African Reserve Bank Governor Lesetja Kganyago told reporters.
Most economists had expected a 25 bps reduction, the same size of cut as in September.
But a small minority thought the SARB would go for a bolder 50 bps cut in the wake of Wednesday data showing annual inflation slowed to 2.8% in October (ZACPIY=ECI), its lowest level since the peak of the COVID-19 pandemic in mid-2020.
Kganyago stuck to his trademark cautious tone, however, playing up global risks including that interest rates could shift higher again and domestic price pressures from items like food, electricity and water.
"A disinflation process is there, but it is clearly a very bumpy road, and it is making central banks cautious across the board," he said. "The problem that the world economy is in at the moment is that the stars are covered by clouds."
Kganyago said rand weakness in the wake of Donald Trump's U.S. election victory showed how rapidly changes in the global environment affect South Africa.
The SARB only made slight tweaks to its inflation projections for the next few years, and still sees inflation staying below 4% until the middle of next year.
Its economic growth projections were also relatively little changed, reflecting a gradual recovery bolstered by government reforms and a consumer spending boost from new pension rules.
Razia Khan, chief economist for Africa and Middle East at Standard Chartered, said she expected the SARB to follow up with 25 bps cuts at its January, March and May policy meetings next year, barring shocks.
She added: "We still see 7.0% as the terminal rate in this cycle, with policy remaining relatively restrictive."
