The South African Reserve Bank (SARB) announced on Thursday that the repo rate remains unchanged at 8.25%.
What is the latest repo rate?
This decision followed the central bank’s May Monetary Policy Committee (MPC) meeting. The unchanged repo rate means that the prime lending rate of local commercial banks also remains steady at 11.75%.
The repo rate, which has been at 8.25% for the past year, is the interest rate at which the Reserve Bank lends money to commercial banks.
By keeping the repo rate constant, the central bank aims to manage inflation, which, although cooling, remains at the higher end of its target range. In April, inflation slowed to 5.2%, showing signs of stabilizing.
Governor Kganyago noted that the bank projects inflation to stabilize by mid-2025, an improvement from earlier forecasts predicting stabilization only by the end of next year.
Additionally, the SARB expects South Africa’s GDP growth to be 1.2% this year, a positive outlook bolstered by reduced load shedding in recent months.
How the repo rate affects your daily life
The repo rate influences the interest rates that banks charge on loans and offer on savings. Here’s a breakdown of its impact:
- Loans and Mortgages: When the repo rate is high, borrowing money becomes more expensive. Banks increase their interest rates on loans and mortgages, which means higher monthly payments for consumers. Conversely, if the repo rate were to decrease, loan repayments would become cheaper. Currently, with the prime lending rate at 11.75%, individuals with mortgages or personal loans will continue paying at the same interest rate as before.
- Savings and Investments: The repo rate also affects the interest rates on savings accounts and fixed deposits. When the rate is high, banks offer higher interest rates on savings, which can be beneficial for savers looking to earn more from their deposits. On the flip side, lower repo rates typically result in lower returns on savings.
- Inflation Control: One of the main reasons for adjusting the repo rate is to control inflation. By maintaining a higher repo rate, the SARB aims to reduce consumer spending and borrowing, which can help curb inflation. With inflation currently at 5.2%, the SARB’s decision to keep the rate unchanged indicates their ongoing efforts to balance economic stability.
- Economic Growth: The repo rate can influence overall economic activity. Lower rates can stimulate growth by making borrowing cheaper for businesses and consumers, leading to increased investment and spending. The SARB’s expectation of a 1.2% GDP growth rate for 2024 suggests a cautiously optimistic economic outlook, supported by recent reductions in load shedding.
