‘Adventurism’ not part of policy toolkit, says Kganyago after rate cut

SA will not necessarily mirror the US on interest rates.

The decision by the South African Reserve Bank (Sarb) to start the country’s rate-cutting cycle on a cautionary note was broadly in line with expectations, even though a few hopefuls had bet on a more generous downward adjustment.

Sarb Governor Lesetja Kganyago on Thursday announced a 25-basis point cut in the country’s repurchase (repo) rate – the first drop in four years.

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He said during a media conference in Pretoria that the Monetary Policy Committee had carefully assessed the balance of risks, and concluded that it should take a prudent stance with interest rates.

“Adventurism is not part of our monetary policy toolkit,” he said.

Kganyago emphasised that there are many moving parts domestically and globally that could cause inflationary shocks.

Read: Two-pot withdrawal applications total R4.1bn so far, says Sars

The two-pot retirement system that came into effect in South Africa in September could bring about extra spending, “although some of these funds will be absorbed by debt repayments and tax”.

SA to take its own steps

The US Federal Reserve’s decision to cut interest rates more aggressively – by 50 basis points – on Wednesday ignited hopes that the Sarb would fall in step and do the same.

However, Lourens Pretorius, fixed income portfolio manager at Matrix Fund Managers, points out not all rate-cutting cycles look the same, and cautions against expecting the Sarb to follow the US Fed “step by step”.

A prudent and somewhat conservative approach by the central bank will continue to support the rand and the bank will most likely reduce interest rates incrementally, he adds.

Read:
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No immediate demand for home loans 

FNB CEO Harry Kellan views Sarb’s rate cut as consistent with the global trend towards lower interest rates.

“[We] do not anticipate a major cutting cycle. Inflation expectations remain above the Reserve Bank’s target mid-range of 4.5%, with average inflation expectation for 2024 at around 5%, though it is expected to decline next year.”

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Interest rates will most likely be lowered further in 2025 but will be modest and dependent on new inflation data, Kellan adds, echoing the sentiments of Casey Sprake, investment analyst of Anchor Capital, who previously told Moneyweb that she believes the rate-cutting cycle will be “shallower than expected”.

Jonathan Kohler, founder and CEO of Landsdowne Property Group, says the company had seen an increase in appetite from prospective homebuyers in the run-up to the Sarb’s interest rate announcement on Thursday. However, their buying power is still limited.

“The respite of a marginal interest rate cut will have minimal impact,” he says.

“A drop in interest rates will take time to reflect in demand for new homes, as consumers will likely first settle more expensive credit cards and other debt.”

Listen: How much will rate cuts help consumers?

Toni Anderson, head of Standard Bank Home Services, says the first rate cut in more than four years will give much-needed relief to households that have struggled with steep debt servicing costs.

“A bond worth R1 million will see a savings of R208 per month, or R2 500 per year, following this 25-basis-point rate cut,” she notes.

Standard Bank expects three additional rate cuts of 25 basis points each – one in November and two in the first half of 2025, which could mean even bigger long-term savings.

“If these expected cuts reduce rates by a total of 100 basis points, homeowners could save R833 per month on a R1 million property in the next year.”

Listen/read: Keen to buy a property when interest rates drop? 

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