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SARB Cuts Interest Rates
This week marked the 300-day mark of no load-shedding, and the South African Reserve Bank (SARB) cut interest rates by 25 basis points or 0,25% yesterday, dropping the repo rate to 7,50% with the prime lending rate going down to 11,0%.
This was our expectation, as I shared last week, even when, on Wednesday, the US Fed kept their interest rates on hold.
Lower inflation and interest rates present a positive framework and environment for investment markets and, therefore, are welcomed.
It wasn’t a unanimous decision by the SARB committee, where four members voted for the cut, while two voted for rates to remain unchanged.
The latest inflation data from South Africa stood at 3,0% in December, well below the SARB’s midpoint target of 4,5%.
Our Reserve Bank Governor then emphasised that the risks to the SARB’s target remain on the upside amidst global developments.
Looking at growth data, he shared how GDP national growth contracted in the 3rd quarter last year on the back of extremely weak agricultural production, where these figures many economists still question, and expect this to be revised in the 4th quarter data to be released.
Interestingly, the SARB also mentioned they expect a rebound in the 4th quarter from a recovery in agricultural production and higher spending due to two-pot withdrawals that saw the latest retail sales climb 7,7%.
After I shared the International Monetary Fund’s growth forecasts last week, the SARB came out saying they see GDP growth reaching 2,0% by 2027, despite the disappointing mining and manufacturing sectors, which are still below Covid-19 levels.
The Governor also provided a good global context, stating that the outlook of US Monetary Policy rate cuts looks limited in South Africa amidst rising tariffs. Reserve Bank Governor Lesetja Kganyago added that the US Fed may even increase rates to tackle inflation.
Europe also sees weak economic growth expectations and elevated inflation targets, while China’s economy has been decelerating, marked by low interest rates and deflation.
The US dollar has thus seen strength, reaching a possible record high.
The MPC also looked at the potential consequences of a global trade war, with US President Donald Trump threatening to increase tariffs across the globe.
The model used considered a 10% universal increase in US tariffs – with retaliatory measures by other countries. The scenario showed higher inflation and interest rates globally and greater risk aversion in financial markets.
On a more positive note, the SARB also looked at a scenario where major structural reforms are introduced in the country. This would see growth increase from 2,0% to 3,0% in 2027. This would also result in further lower inflation and lower interest rates.
Interest rates we know from the past, take a good 3-6 months to work through to the man-on-the-street, and therefore the first interest rate cuts from last year, are only taking effect now.
Investment markets though, forward prices and anticipate events up to a year in advance, and therefore local markets embrace these rate cuts fairly immediately.
SARB Reserve Bank Governor Lesetja Kganyago’s Speech
To view the TV recording of the interest rate announcement, where the Governor also gave a good indication of the global dynamics, you can click on the YouTube link below;
Retirement Annuity (RA) and Tax-Free Savings Account (TFSA) top-ups are here!
Now is the perfect time to ensure that your contributions to your retirement annuity (RA) fund still meet your retirement goals and to take full advantage of the current tax Year’s deduction regime.
I’ve been writing an article each year for the past 9 years on how beneficial it is to invest in RAs, and all the benefits still exist and is even better than what it used to be. Here is the 9th edition of my article. THE VALUE OF RETIREMENT ANNUITIES 2025
The 2024/2025 year of assessment ends on 28 February 2025. This means you only have until the middle of next month to make additional (tax-deductible) contributions to your RA fund or to make a lump sum (tax-deductible) contribution to a new RA fund if you don’t already have one.
Don’t miss this opportunity to maximise your tax deduction and boost your retirement savings. Also, don’t leave it until Feb 27th to decide to make additional contributions. The product providers have strict cut-off times and if you miss the boat, you miss the tax you could have saved.
If you are not sure what an RA or TFSA is or are still on the fence about making the extra contributions, have a look at this Retirement Annuities And Tax Savings For 2024 - 2025 article we wrote about the benefits of each of them and why everyone is SA that pays tax should at least have a RA.
If you already have enough to retire on yourself, reducing your estate by making TFSA contributions for kids or any other people you care about is a great way to reduce your estate duty. You could create generational wealth with only R36,000 paid into this investment until the lifetime allowance of R500,000 is used up.
FRIDAY FOOD FOR THOUGHT
