South Africa Maintains Repo Rate Amid Trade and Budget Risks

South Africa’s central bank has paused rate cuts, keeping the repo rate at 7.50% amid risks from global trade tensions and a deadlocked national budget. Governor Lesetja Kganyago highlighted a cautious policy due to ongoing economic uncertainties, while inflation remains stable at 3.2%. The rand shows resilience despite political tensions, although a proposed tax increase could impact inflation.

In a significant development on Thursday, South Africa’s central bank chose to halt its rate-cutting cycle due to prevailing risks associated with U.S. President Donald Trump’s trade policies and the ongoing deadlock over the national budget. The South African Reserve Bank decided to maintain the repo rate at 7.50%, aligning with the median expectations of economists surveyed by Reuters, following a series of rate reductions in the previous three monetary policy meetings.

The decision was not unanimous; four members of the bank supported maintaining the current rate, while two advocated for a reduction of 25 basis points. Governor Lesetja Kganyago emphasized the need for a cautious approach, citing instability in the global economy and various domestic uncertainties. Notably, annual inflation remained stable at 3.2% in February, close to the central bank’s target range of 3% to 6%.

The South African currency, the rand, showed resilience this year, appreciating over 3% against the U.S. dollar in 2025, notwithstanding deteriorating relations with the Trump administration over South Africa’s land reform initiatives and a genocide case against Israel at the World Court. Furthermore, a contentious aspect of the national budget involves a proposed 1 percentage point increase in value-added tax, which is facing obstacles in Parliament and is anticipated to exacerbate inflation concerns.

In conclusion, South Africa’s central bank has opted to maintain the current repo rate due to global trade tensions and domestic financial uncertainties. While inflation remains low, the ongoing budget challenges, particularly regarding tax increases, pose potential risks. This decision underscores the bank’s cautious approach amidst a complicated economic landscape.

Original Source: money.usnews.com