South Africa Maintains Interest Rates Amid Global Trade and Budget Risks
South Africa’s central bank paused rate cuts, keeping the repo rate at 7.50% due to global trade risks and budget uncertainties. Annual inflation remains steady at 3.2%. The country’s proposed budget adjustments, particularly a VAT increase, could impact inflation and lack adequate parliamentary support.
On Thursday, South Africa’s central bank decided to pause its rate-cutting cycle, primarily due to significant risks associated with U.S. President Donald Trump’s trade policies and the nation’s stalled budget. The South African Reserve Bank maintained the repo rate at 7.50%, aligning with the median forecast of economists surveyed by Reuters. This decision follows three consecutive monetary policy meetings that resulted in rate cuts.
The decision was a split one: four members of the bank supported maintaining the current rate, while two members advocated for a reduction of 25 basis points. Governor Lesetja Kganyago emphasized during a press conference that, “The global economy is not on a stable footing and there are also domestic uncertainties, … this calls for a cautious policy approach.”
Despite facing these challenges, South Africa’s annual inflation remained steady at 3.2% in February, keeping it within the bank’s target range of 3% to 6%. Notably, the rand has demonstrated resilience, appreciating over 3% against the U.S. dollar in 2025, despite deteriorating relations with the Trump administration over land reform and the Israel genocide case at the World Court.
A critical element of South Africa’s budget remains under discussion, specifically a proposed 1 percentage point increase in value-added tax over two years. This taxation proposal currently lacks sufficient parliamentary support and is expected to contribute to inflationary pressures if implemented.
In summary, South Africa’s central bank has opted to hold the repo rate steady at 7.50% amidst growing global and domestic uncertainties. Annual inflation remains low; however, potential fiscal measures, such as a proposed increase in value-added tax, pose risks to economic stability. The resilience of the rand amid strained international relations further complicates the economic landscape, necessitating a cautious policy approach moving forward.
Original Source: money.usnews.com
