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MONETARY POLICY COMMITTEE

SA Reserve Bank holds rates steady, but Kganyago’s finger remains on the hiking trigger

SA Reserve Bank holds rates steady, but Kganyago’s finger remains on the hiking trigger
Governor of the South African Reserve Bank Lesetja Kganyago. (Photo: Samuel Corum / Bloomberg via Getty Images)

The Monetary Policy Committee (MPC) of the South African Reserve Bank held its key repo rate in check on Thursday, but Governor Lesetja Kganyago warned that its finger remains on the hiking trigger as the fight against inflation ‘is still on’.

The decision means that the SA Reserve Bank’s key repo rate remains unchanged at 8.25% and the prime lending rate at 11.75%. After raising rates by 475 basis points since November 2021, indebted South African consumers and businesses will breathe a sigh of relief. 

But Kganyago disabused any notion that the tightening cycle was at an end, as the spectre of inflation still haunts the South African economy.

“Have interest rates peaked? The answer is a resounding no,” Kganyago said during the Q&A that followed his delivery of the MPC statement. 

“And as a good central banker, I will say to you that, further to this, it depends on what happens to inflation … Is this the end of the hiking cycle? No, it is not,” he said. 

The governor has a measured and deliberate speaking style and he placed an emphasis on “NO” and “NOT”. This is a strong signal that this is simply a pause and that the next move will almost certainly be up rather than down. 

His hawkish comments, and the tone of the MPC statement, may explain why the rand only lost fractional ground to fetch 17.90/dollar about an hour after the decision was announced, compared to 17.86/dollar beforehand. 

The central bank remains laser-focused on inflation, which in June slowed to 5.4% from 6.3% in May, bringing it back within the SA Reserve Bank’s 3% to 6% target range for the first time since April of last year. 

Read more in Daily Maverick: At 5.4% in June, SA consumer inflation within Reserve Bank’s target range ahead of rate decision

This could be seen as vindication for the SA Reserve Bank’s aggressive tightening and 10 straight hikes before the latest decision, but Kganyago indicated that the MPC is still in the ring with its gloves – or brass knuckles – on. 

“The job is not done. The fight is still on. We are ready to deploy our tools to tackle this monster that is eating the income of South Africans. There are still risks on the horizon and we are remaining vigilant to those risks,” he said in response to a question about whether the [SA Reserve Bank] thinks it’s been successful so far in the fight against inflation. 

“Risks to the inflation outlook are assessed to the upside. Headline inflation at a global level continues to moderate, but food price inflation remains high and oil markets remain tight. 

“Despite recent easing in some food price components, domestic food price inflation is still elevated at 11% in June and the risk of drier weather conditions in coming months has increased,” the MPC statement  said. 

That speaks to the risks of the recently formed El Niño weather pattern which typically heralds drought in South Africa and its neighbours.

Read more in Daily Maverick: UN agency declares El Niño has begun, warns of soaring temperatures, extreme weather events

Then there is Russia’s recent torpedoing of the Black Sea grain deal which threatens to keep global food prices elevated – a state of affairs that means more hunger and misery for South Africa and the rest of the continent. 

Read more in Daily Maverick: Russia’s decision to end Black Sea grain deal puts global food security at risk 

“In the absence of sustained and consistent increases in energy supply, electricity prices continue to present clear inflation risks. Load shedding and logistics constraints may also have broader effects on the cost of doing business and the cost of living,” the MPC statement said. 

This in turn speaks to the shambles that are Eskom and Transnet.  

The SA Reserve Bank did slightly raise its 2023 forecast for South African economic growth to 0.4% from 0.3% previously, largely because of the surprise reduction in rolling blackouts in June. But this barely moves the growth dial.  

“An improvement in logistics and a sustained reduction in load shedding, or greater energy supply from alternative sources, would significantly increase growth,” the statement noted, with some understatement. 

The bottom line is that inflation – which is the main culprit in the current cost-of-living crisis and extracts its gravest toll on poor households – remains a significant concern for the SA Reserve Bank. 

This means that rates are likely to go up again before they come down. DM 

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Comments - Please in order to comment.

  • Sean Du Toit says:

    How is it that the inflation rate is only 5.4% but everything I buy is up by 15 – 25%. This includes electricity, fuel, food. How is this Inflation rate calculated. Is it a true reflection or just a number?

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