The South African Reserve Bank’s (SARB’s) Monetary Policy Committee (MPC) has voted to hold interest rates for the fourth consecutive meeting.
The first interest rate decision for the new year leaves the repo rate at 8.25%, with the prime lending rate at 11.75%.
The bank’s decision was unanimous and falls in line with market consensus.
While the SARB has acknowledged the easing inflationary environment, the bank remained hawkish, warning that the risks to the inflation outlook remain on the upside – particularly around food inflation, the power and the logistics and infrastructure crises.
Reserve Bank governor Lesetja Kganyago said that at the current repurchase rate level, the policy is restrictive, consistent with the inflation outlook and the need to address rising inflation expectations.
“Serious upside risks to the inflation trajectory from global and domestic sources are evident, and the economic outlook is highly uncertain,” he said.
“While our baseline inflation forecast is of continued gradual moderation in global and domestic inflation, the risks to the outlook are still assessed to the upside. Better than expected global growth last year and ongoing geo-political tensions this year serve to keep global oil markets tight,” he said.
Local fuel price inflation is expected to be low, averaging below 1% in 2024. Food price inflation is revised slightly higher for 2024, to 5.7%, but remains broadly unchanged over the forecast period.
Core inflation was 4.9% in 2023. The core inflation forecast for 2024 and 2025 is little changed at 4.6%, and 4.5% in 2026.
Services inflation in 2023 was 4.2%. The forecast for 2024 services price inflation remains unchanged at 4.8%.
Speaking on South Africans struggling with money and being in recession in terms of their ability to spend, Kganyago said this was one of the key reasons for its policy moves.
“Disposable income is weak, in real terms – this means adjusted for inflation. So inflation is eating people’s disposable income and restricting their ability to spend. So if people are to have (disposable income) in the future, you’ve got to rein in inflation,” he said.
“Failure to rein in inflation means you are eroding the purchasing power of (households).”
Looking ahead to possible cuts, Kganyago said that the bank’s position remains the same: future interest rate decisions will depend on the data available during the MPC meeting.
The governor previously noted that interest rates won’t be cut until the inflation rate is back in the middle of its target range (3% to 6%) sustainably. Kganyago specified a few prints of low inflation do not make a trend.
He reiterated that the SARB is a “flexible inflation targetter”, and there is not yet a discernable trend that inflation is returning to the bank’s target.
“Unless inflation gets there in a sustainable manner – don’t expect us to recalibrate policy,” he said.