SA Central Bank Eyes Cheaper Euro Funds Amid Rate Cut Cycle

South Africa's central bank is expressing interest in leveraging new European Central Bank (ECB) repo facilities. Governor Lesetja Kganyago indicated that these lines, intended to make euro liquidity more accessible, could benefit South Africa due to its significant trade and investment ties with Europe. He suggested that such access would help underpin bilateral trade, calling it a 'welcome development.'

On domestic monetary policy, Kganyago confirmed that South Africa's interest rate-cutting cycle has not concluded. The decision to maintain rates at 6.75% in the previous month signals that the terminal rate is still distant. Policymakers are awaiting further inflation slowdowns before altering rates, with projections suggesting two more 25-basis-point cuts this year and an additional cut next year, though these are flexible.

Kganyago also addressed concerns about the "weaponisation" of the international financial system. He emphasized that emerging market economies, including BRICS nations, are not attempting to oust the U.S. dollar but are focused on safeguarding themselves against financial exclusion, referencing actions taken against Russia. He views access to dollar channels as a privilege and sees little likelihood of a BRICS-specific currency emerging soon.

Furthermore, Kganyago discussed the role of currency reserves, noting that South Africa's current composition, with approximately 60% in dollars, reflects trade patterns. He argued that the true driver for fast-payment system interoperability is reducing cross-border payment costs, particularly in Africa, where non-convertibility often necessitates dollar-invoiced trade chains.