By Nico van Burick
After three consecutive cuts of 25 basis points to South Africa’s prime interest rate – in September 2024, November 2024 and January 2025 – the Reserve Bank has announced that the rate will remain unchanged for now.
The Reserve Bank’s Monetary Policy Committee (MPC) announced its bi-monthly interest rate decision on 20 March. At a press conference, Governor Lesetja Kganyago stated that four MPC members voted to keep the prime lending rate unchanged, and two favoured a 25-basis-point reduction.
This decision follows Statistics South Africa’s announcement that the inflation rate remained steady at 3,2% in February, the same as in January.
One of the main reasons for keeping the interest rate unchanged – despite inflation being under control – is uncertainty about the global economy, particularly the risk of a trade war between the United States and South Africa.
Prof Johan Willemse, agricultural economist and columnist for African Farming’s sister publication Landbouweekblad, expressed disappointment that the Reserve Bank did not seize the opportunity to lower interest rates further. “The fact is the economy is not growing enough, and unemployment remains high. With inflation at the lower end of the Reserve Bank’s 3-6% target range, its policy is unnecessarily strict.
“The bank is clearly cautious about geopolitical risks and has indicated that a VAT increase could also push up inflation. Unfortunately, while it is forced to tighten monetary policy, fiscal policy is driving up government spending, which will increase inflation. This is not good news for the economy or for agriculture.”
Dawie Maree, head of Information and Marketing at FNB Agriculture, says he was not surprised by the decision to leave the rate unchanged.
“The Reserve Bank is traditionally quite conservative and won’t lower interest rates simply because inflation is under control at the moment. Given the current uncertainties, this may have been the right decision, but I suspect we may see one more cut – probably in May. I have my fingers crossed for that.”
Desry Lesele, senior manager for Client Value Propositions: Agriculture at Nedbank Commercial Banking, says the decision is largely due to high levels of uncertainty in the global economy. While a rate cut would have been welcome, he says it was not expected.
“With primary and secondary agricultural debt at around R280 billion, a rate hike would have been a setback for the sector, increasing financial distress for some farmers. Interest rates remain relatively high, adding pressure on farmers to manage their debt.”
Despite this, he notes that the agricultural sector remains optimistic, as reflected in the latest Agbiz/Industrial Development Corporation Agribusiness Confidence Index. The index reached 70 points in the first quarter of this year, the highest level since 2021.
Bennie van Zyl, general manager of TLU SA, says he is deeply concerned about the state of the National Treasury. He warns that economic growth remains stagnant, and if funds to pay grants for 28 million people run out, South Africa could face widespread unrest.
“An interest rate cut would have made little difference to the reality that the economy cannot be effectively stimulated,” he says.
