November 01, 2024
Africa-news

South African Reserve Bank keeps rates on hold

September 21, 2023
South African Reserve Bank keeps rates on hold

The South African Reserve Bank’s Monetary Policy Committee has elected to hold rates in a tight vote.

Three members of the committee voted for a hold, and two voted for an increase of 25 basis points.

This keeps the repo rate at 8.25%, with the prime lending rate at 11.75%.

While the result was in line with economist and analyst expectations, the close call between a hold and another rate hike is reflective of the uncertain conditions South Africa continues to operate in – despite inflation coming down.

Reserve Bank governor Lesetja Kganyago noted that headline inflation has been coming down over the past few months, but acknowledged the slight rise announced by Stats SA on Wednesday, saying that its future trajectory is less certain.

Inflation in August ticked slightly higher to 4.8%, up a fraction from 4.7% in July.

He also noted that global market conditions are also tight, increasing the cost of financing and that this situation is likely to persist.

Other local pressures also exist – such as the ongoing power outages.

“Despite considerable reprieve in the winter months, South Africa’s electricity load shedding has increased, and prices for commodity exports continue to weaken. In the near term, stronger El Niño conditions threaten the agricultural outlook, while global climatic events present additional risks,” he said.

“Energy and logistical constraints remain binding on the growth outlook, limiting economic activity and increasing costs.”

Inflation has been coming down, but core inflation remains relatively high – and expectations from major sectors are that the battle against inflation is still very present.

“Indications are the fight against inflation is not yet done,” Kganyago said. “Load shedding and logistics constraints may also have broader effects on the cost of doing business and the cost of living. Given uncertain fuel and food price inflation, considerable risk still attaches to the forecast for average salaries.”

While the Bureau for Economic Research’s inflation expectations survey showed a slight drop to 6.1%, Kganyago said the committee would feel more comfortable with this being rooted in the middle of the target range of 3% to 6%.

Therefore, while interest rates are being held, the risks are still there, he said. “Risks to the inflation outlook are assessed to the upside.”

Looking ahead, Kganyago said that the central bank’s policy stance will look at inflation over a longer term, aiming for a more sustained level at the middle of its target range.

“The MPC will seek to look through temporary price shocks and focus on potential second round effects and the risks of de-anchoring inflation expectations.

“Guiding inflation back towards the mid-point of the target band reduces the economic costs of high inflation and will achieve lower interest rates in the future.”-bustech

 

 

Rate this item
(0 votes)
« BRICS announces 6 new members Mary Vilakazi becomes first woman to head FirstRand »
back to top
Ad Sidebar Small Size
Ad Sidebar big size

Joomla! Debug Console

Session

Profile Information

Memory Usage

Database Queries