25bps rate cut provides relief for the agricultural sector in tough times

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Humphrey Malalo and Elias Biryabarema

The South African Reserve Bank (Sarb) announced the much-anticipated rate cut of 25 basis which brought the benchmark repo rate to 8%. The Sarb’s growth outlook has been nudged upwards on the back of rising confidence as the electricity supply stabilised coupled with extra spending due to withdrawals from the new two-pot retirement system.

Image source: Gallo/Getty

This development is likely to spur agriculture expansion prospects as debt servicing costs decline thus boosting profit margins. Agriculture manufacturing sales weakened in 2024 due to poor agriculture conditions and a reduction in interest rates will go a long way in bringing confidence to the sector.

This comes at the right time as farmers prepare their budgets for the new agriculture season (2024/25). Additionally, the weather outlook has turned positive with La Niña conditions forecast for the new season which should see a rebound in production. This follows the drought-induced reduction in the 2023/24 harvest by 19% year-on-year for maize, South Africa’s biggest staple, to 13.03 million tonnes.

Further positive developments are that the fuel price outlook shows a decline after three consecutive months of cuts, the electricity supply remains stable, and the stronger exchange rates will help reduce input costs for farmers. All this will of course improve prospects for renewed confidence in the sector.