As we intimated in Viewpoint a week ago, the probability of the Reserve Bank lowering interest rates at its Monetary Policy Committee (MPC) meeting had increased as a result of recent lower-than-expected inflation outcomes and a stronger Rand.

• Over and above these factors, the rationale for such a rate cut was enhanced today by a decision on the part of the Reserve Bank to reduce its targeted inflation rate effectively without a new inflation target actually being agreed upon officially.

The Bank’s Quarterly Projection Model (QPM) now incorporates inflation rates for next year and the year thereafter coming in close to 3.0% effectively as the base case forecast instead of the 4.5% level previously targeted.

• This enhances the prospect of domestic interest rates declining by 1% more within two years than the previous forecast of a mere 0.25% additional rate cut. This, in turn, accelerates overall economic growth from 2027 onwards, which could potentially lead to even better growth beyond then.