South African Reserve Bank Holds Interest Rates Steady Amid Global Uncertainty

The South African Reserve Bank (SARB) is set to keep interest rates unchanged at 7.5% as it monitors global economic shifts, including the impact of US President Donald Trump’s latest trade policies.

Most economists polled by Bloomberg predict that SARB Governor Lesetja Kganyago and his monetary policy committee (MPC) will pause rate adjustments to assess inflation risks linked to global trade dynamics. This decision comes despite a lower-than-expected inflation rate of 3.2% in February, below the 3.4% forecast.

Why the SARB Is Holding Rates Steady

While South Africa’s struggling economy could benefit from lower borrowing costs, global economic concerns are taking precedence. According to Patrick Buthelezi, an economist at Sanlam Investment, the MPC is expected to hold off on further rate cuts due to the uncertainty surrounding US trade policies and their potential inflationary effects.

“I think they’ll probably pause for now,” Buthelezi said. He highlighted that the US Federal Reserve’s stance on interest rates could influence SARB’s decision-making. If the Fed raises rates to counteract inflation caused by Trump’s tariffs, the South African central bank may have to follow suit to protect the rand from further depreciation.

The Impact of US Trade Policies on South Africa

Since returning to office, Trump has implemented tariffs on multiple trading partners, causing long-term inflation expectations in the US to rise at their fastest pace since 1993. A resulting hike in US interest rates could put pressure on emerging market currencies, including the rand.

“The SARB, unfortunately, will have to respond, because the currency would weaken in that environment,” Buthelezi warned.

Another factor influencing the decision is South Africa’s deteriorating trade relations with the US. Some analysts fear the country could lose its preferential status under the African Growth and Opportunity Act (AGOA), which covers approximately $3.6 billion of South African exports to the US.

Investor Confidence and Fiscal Uncertainty

Institutional investors, including Franklin Resources, JPMorgan Chase, and Wells Fargo, have already reduced their exposure to South African bonds, leading to outflows at levels not seen since the elections last May. This reflects broader concerns about the country’s economic direction.

Andrew Matheny, an economist at Goldman Sachs, noted that the SARB is also considering uncertainty over the government’s budget proposals. The recent budget suggested a 0.5 percentage point increase in the value-added tax (VAT) rate over the next two years, but political opposition has made its approval uncertain.

“While we see a strong case for further monetary easing on the basis of dovish cyclical dynamics, we expect that budget uncertainty will prompt the SARB to keep rates unchanged,” Matheny said.

What’s Next for South African Interest Rates?

Although inflation remains within SARB’s target range, external pressures—such as US trade policies, investor sentiment, and political uncertainty—are likely to keep interest rates steady in the near term.

The central bank’s decision will be announced on Thursday afternoon, and economists predict a close vote among MPC members. While the SARB may lean toward rate cuts later in the year, for now, policymakers seem set to wait until the “dust settles” before making any significant moves.

With global uncertainty weighing on South Africa’s economic outlook, the SARB is expected to take a cautious approach and keep interest rates at 7.5%. As the country navigates trade tensions, investor concerns, and fiscal policy debates, monetary policy decisions in the coming months will be closely watched by markets and businesses alike.

{Source Moneyweb}

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