Following the South African Reserve Bank’s (SARB) decision earlier today to lower its benchmark repo rate by 0.25%, FNB confirms that it will cut its prime-linked lending rate by 0.25% with effect from Friday 30 May 2025.
FNB CEO Harry Kellan says, “This move by the SARB is likely to be well-received by South African households and businesses. It comes at a time when we’re seeing a more positive inflation outlook for the rest of the year, along with growing urgency to boost economic activity. That said, we may still see repo rates reduced once more this year, something we’ll be watching closely in upcoming MPC meetings.”
“Interest rates and inflation need to be viewed in a wider context. We saw a sharp decline in the FNB/BER consumer sentiment measure in the first quarter of 2025, driven largely by indications of a potential VAT hike which has been removed. While the VAT hike uncertainty has been resolved, the recent approved budget does continue to reflect continued fiscal pressures. Consumer sentiment is also impacted by the lower-than-expected inflation increases in house prices as noted in the FNB Property Barometer,” continues Kellan.
FNB Chief Economist Mamello Matikinca-Ngwenya says, “The MPC’s decision to cut interest rates highlights a greater focus on domestic fundamentals. Inflation remains below the bottom of the inflation target range and high-frequency data reflects a weak start to 2025 from a productive sector point of view, which will be worsened by faltering global prospects. Ultimately, the macroeconomic outlook is benign, providing ample space for a continued cutting cycle.”
“That said, the impact of heightened uncertainty on investor confidence and capital flows will likely continue to drive gyrations in capital and currency markets – exacerbating external vulnerabilities and keeping the SARB cautious. Furthermore, South Africa’s difficult fiscal trajectory is delaying any improvements in sovereign risk and borrowing costs. The outlook on interest rates will continue to reflect these risks. Should muted local inflation and expectations that the Fed will resume its cutting cycle before year-end prevail, our current view that another 25bps cut is probable this year would be supported,” adds Matikinca-Ngwenya.
