South Africa Eyes ECB Repo Lines as Inflation Eases and Rate Cuts Loom

South Africa is keen to make use of potential new European Central Bank (ECB) repo liquidity lines, according to central bank governor Lesetja Kganyago, as the country continues to navigate easing inflation and a gradual interest rate cutting cycle. Speaking at the Warwick Economics Summit in the UK, Kganyago said access to ECB repo lines would be beneficial given South Africa’s deep trade and investment ties with Europe.

The ECB, led by President Christine Lagarde, recently signaled plans to make its euro repo liquidity lines cheaper and more accessible. These facilities allow foreign central banks to borrow euros against euro-denominated collateral, primarily during periods of financial stress, and are part of broader efforts to strengthen the euro’s global role. Kganyago said such a move would help support trade flows between South Africa and Europe and would be a “welcome development” for the country.

On domestic monetary policy, Kganyago emphasized that South Africa’s benchmark interest rate, currently at 6.75%, remains well above its eventual terminal level. While inflation has cooled significantly, policymakers want clearer evidence of sustained disinflation before accelerating rate cuts. Current projections suggest two 25-basis-point rate cuts this year and another next year, though Kganyago stressed these forecasts are not firm commitments and may change as economic conditions evolve.

A key factor behind lower inflation has been the strong performance of the rand over the past year. Although the currency has softened recently amid global market volatility and fluctuating gold prices, Kganyago downplayed concerns, noting that the rand has become less volatile overall, reflecting improvements in South Africa’s economic policy framework.

Kganyago also addressed global financial dynamics, including concerns among emerging markets about the “weaponisation” of the international financial system. While dismissing the idea of a BRICS currency as impractical without a shared central bank, he said countries are exploring alternatives to reduce reliance on dollar-based systems, particularly for cross-border payments. South Africa’s foreign reserves remain around 60% dollar-denominated, a structure Kganyago said will only change if trade patterns shift, underscoring the continued dominance of the U.S. dollar in global finance.