There’s no relief for borrowers, but there should be for savers: The South African Reserve Bank’s Monetary Policy Committee (MPC) has kept the benchmark repo rate at its 14-year high of 8.25%.

This comes after Statistics South Africa’s latest data revealed that the Consumer Price Index had lifted marginally for the first time in five months to 4.8%, keeping the CPI within the Reserve Bank’s target range of between 3% and 6%. 

Risks to the inflation outlook are assessed to the upside, said Sarb Governor Lesetja Kganyago during the announcement in Centurion, and while inflation had eased over the year, a further slowdown looked less certain. 

Growth forecasts remain muted in most advanced economies, while the longer-term economic outlook is clouded by persistent risks to the global inflation trajectory, including the negative effects of climate change, fuel prices and ongoing geopolitical tensions. 

On the home front, rolling blackouts have increased, prices for commodity exports continue to weaken, food prices remain sticky and the oil price is nearing $100 a barrel. All this is while El Niño conditions threaten agriculture and global climatic events present additional risks. 

Energy and logistical constraints are limiting economic activity and driving up costs.

Kganyago said South Africa was faced with shocks from all sides: “When you have one supply shock, you can easily just see through it; when it is a multiplicity of shocks, it starts to feed quicker than normal into other prices and, as such, the central bank would have to respond to those.”

The problem, he said, was that the data moved around quite a bit, making it difficult to assess, which is why they had highlighted that these risks remain and that should they see them materialise, “we stand ready to act”.

He warned that the job of tackling inflation was not yet over and that further hikes could be on the cards, as risks to the inflation outlook expand.

The decision was largely in line with economists’ predictions that it would remain unchanged, due to the weakening economy, rising fuel, water and electricity prices, the global geopolitical crisis and other risks.

Keeping interest rates on hold wasn’t unanimous, as two members of the MPC voted for a hike. 

Since November 2021, the Sarb has hiked the repo rate 10 times in 11 meetings.

The MPC could well raise rates at its November meeting, with Kganyago saying domestic food price inflation was still high and could pick up in the new year.

The Reserve Bank’s GDP forecast for 2024 and 2025 was unchanged at 1% growth and 1.1%, respectively.

Reaction

Adriaan Pask, chief investment officer at PSG Wealth, said before the rates announcement that he expected the Sarb to keep the repo rate steady. 

“We remain watchful of the impact of fluctuations in inflation and interest rates on shares exposed to substantial discount-rate risk over this period and we will continue to adjust our products accordingly.”

Jason Tuvey, deputy chief emerging markets economist at Capital Economics, said the bank’s hold position was never in doubt and showed it was in no rush to begin loosening policy.

“Indeed, the Sarb is likely to be a late-joiner to the EM (emerging market) rate-cutting club and will only begin easing policy early next year, although we think rates will ultimately come down a bit quicker than most expect.”

He said all but one of the 30 analysts polled by Refinitiv before the meeting predicted the outcome, with one analyst projecting a 50 basis point hike.

“For now, we think that an easing cycle will start early next year and the repo rate will be lowered to 7.50% by the end of 2024. Investors have started to come round to our more dovish view on rates, although we still envisage a bit more loosening than is currently implied by market pricing.” DM