South Africa’s central bank cut its benchmark interest rate by 25 basis points to 7.25%, the lowest level in more than two years.
The National Treasury’s decision to scrap plans to raise value-added tax, as well as a stronger exchange-rate assumption, and lower oil prices all helped to revise down inflation forecasts, paving the way for a rate cut.
The central bank’s decision is the first since South Africa’s inflation target was lowered to 3% this month — the first adjustment in 25 years. Central Bank Governor Lesetja Kganyago has long advocated for a lower target, which was previously set between 3% and 6%, arguing that it did not align with South Africa’s international peers, and that the new goal would reduce borrowing costs.
“Now that inflation has slowed, we have a chance to lock in inflation at a lower cost,” Kganyago said on Thursday. The rand strengthened as much as 1% against the dollar on the result.