South Africa’s central bank has paused its rate cuts, keeping the repo rate at 7.50% due to trade wars and budget risks. Inflation remains steady at 3.2%, and the rand strengthens against the dollar. Proposed budget changes face parliamentary resistance, particularly regarding VAT increases.
On Thursday, South Africa’s central bank halted its rate-cutting cycle amid various risks, primarily associated with U.S. President Donald Trump’s global trade activities and the nation’s unresolved national budget issues. This decision to maintain the repo rate at 7.50% aligns with the median predictions from economists surveyed by Reuters and comes after three consecutive rate cuts in prior meetings.
The split decision from the South African Reserve Bank saw four members advocate for maintaining the current stance while two members favored a 25 basis point reduction. Governor Lesetja Kganyago remarked during a press conference that uncertain global economic conditions and domestic issues necessitate a prudent policy approach.
As of February, annual inflation remained steady at 3.2%, situated at the lower end of the central bank’s target band of 3% to 6%. Furthermore, the South African rand has shown resilience in 2025, appreciating by over 3% against the U.S. dollar despite deteriorating relations with the Trump administration related to land reform policies and a genocide case involving Israel.
One of the most debated budget proposals lacks sufficient support in parliament, particularly the suggested increase in the value-added tax by 1 percentage point over two years, which is anticipated to contribute to inflationary pressures.
The South African Reserve Bank’s decision to pause rate cuts reflects the complex interplay of domestic and global economic risks, particularly the influence of U.S. trade policies and local budgetary disputes. With inflation stable and the rand resilient, the bank adopts a cautious stance, ensuring financial stability amidst ongoing uncertainties.
Original Source: money.usnews.com
