Reserve Bank hints at next interest rate decision in May

 ·19 Apr 2024

South African Reserve Bank Governor Lesetja Kganyago says it is too early to tell what this week’s positive inflation data means for interest rates in South Africa but hinted that it might not be enough to cut interest rates just yet.

South Africa’s annual inflation rate fell slightly in March to 5.3%, compared with 5.6% in February, but remains above the 4.5% midpoint of SARB’s target range, where it prefers to peg expectations.

The central bank has kept its benchmark interest rate at an almost 15-year high of 8.25% since May 2023, and Kganyago’s remarks echoed a line he has repeatedly used to argue that it is premature to loosen policy.

Speaking to Bloomberg on Thursday (18 April), Kganyago said it was premature to judge what the latest inflation data means for monetary policy.

There isn’t a discernible trend, but a look at the components of inflation makes for an interesting read,” said Kganyago.

“Food prices have continued their downward trend. They might be reaching the bottom. It’s too early to tell because we do not know the effects of El Niño.”

He added that a key question going forward is how much a drought affecting southern Africa will impact food supplies amid concerns that the harm done to crops may lead to food scarcity.

These comments from Kganyago hint that the Monetary Policy Committee (MPC) may keep rates on hold, especially considering the governor’s past remarks towards when he expects interest rates to start coming down.

“The inflation outlook is uncertain, and it’s been volatile. Until inflation stabilises where we want it, at 4.5%, and is sustained there, we don’t see why we should change our monetary policy stance,” he said.

Kganyago’s sentiments have been echoed by other experts, and traders have been erasing bets on monetary policy easing in South Africa in 2024.

Bartosz Sawicki, market analyst at Fintech Conotoxia, said that persistent price pressures will continue to support the SARB’s hawkish stance.

“With no rate cuts currently priced in, the rand, which has depreciated almost 4% against the rebounding US dollar in year-to-date terms, will remain under the influence of other factors,” he said.

Investec chief economist Annabel Bishop added that CPI data for the rest of the year also point to the unlikelihood of any rate cuts.

“Given the inflationary pressures, the Reserve Bank has revised its inflation forecast for the year slightly, to 4.9% y/y from 4.7% y/y previously, given higher supply side pressures.

It does not see CPI inflation dropping to 4.5% y/y before September.

This is in line with the International Monetary Fund (IMF), which also expects inflation to average 4.9%, only hitting an average of 4.5% in 2025.

With Bloomberg

Read: Big trouble for interest rate cuts in South Africa

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