South African Reserve Bank Governor Lesetja Kganyago during a media briefing prior to the Medium Term Budget Speech on Wednesday 26 October 2022 at Parliament in Cape Town, South Africa. (Photo: Leila Dougan) The South African Reserve Bank has held its benchmark interest rate unchanged at a 14-year-high of 8.25% since May 2023 and is expected to do so again when it meets next week.
While inflation moderated toward the end of last year, the Reserve Bank has repeatedly said it is not convinced that price pressures are slowing to the midpoint of its 3% to 6% target band in a sustainable manner.
Inflation eased to 5.5% in November from 5.9% the prior month, primarily due to a sharp decline in fuel prices, although pressure in other categories such as food remain elevated. December inflation data will be released on Jan. 24, one day before Kganyago announces the rate decision of the monetary policy committee.
Higher for Longer
While pandemic-inflicted supply constraints responsible for propelling price pressures have eased, “inflation is still stubbornly high,” he said. “For it to be eventually conquered, we are going to have to keep rates higher for longer.”
The Reserve Bank will also watch South Africa’s public finances, which face spending pressures ahead of an election later this year in which the ruling African National Congress could lose its national majority for the first time since the end of White-minority rule in 1994.
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The governor has repeatedly cautioned that the state of the country’s finances can dim the economic outlook and elevate borrowing costs. The central bank has also called out the burden imposed on business by repeated power cuts and snarled infrastructure due to the poor performance of the country’s electricity utility Eskom Holdings SOC Ltd. and port and freight-rail operator Transnet SOC Ltd.
Finance Minister Enoch Godongwana is expected to warn of the country’s deteriorating debt trajectory when he presents the annual budget later next month. Kganyago declined to comment directly on the budget, but said he took the Treasury at its word that it would keep the country on a sustainable fiscal path.
“I have got no reason to second guess them,” he said. “I have got every reason that if they have made a commitment, they will meet that commitment. But fiscal policy is not going to be easy this year.”