Reserve Bank holds rates – warns of a longer wait
The South African Reserve Bank’s (SARB’s) Monetary Policy Committee has voted to hold rates, keeping the repo rate at 8.25% and the prime lending rate at 11.75%
The decision was unanimous.
Rates have been on hold since the last policy rate decision a year ago, when the MPC hiked rates by 50 basis points.
Reserve Bank governor Lesetja Kganyago said that while there have been some improvements in key indicators and influencers—particularly the almost two months of no load shedding or national power disturbances—inflation remains a key worry.
Consumer inflation continued to slow for the second consecutive month, performing better than expected. This improvement was mostly due to easing food and core inflation. However, the rate is still not where the Reserve Bank wants it.
“The MPC remains concerned that inflation expectations are elevated. After three years of inflation being above the midpoint, few survey respondents, especially from businesses and trade unions, believe that inflation will be at 4.5% in two years’ time,” he said.
“Although the MPC assesses the risks to the inflation forecast to be broadly balanced at present, high inflation expectations require that we deliver on our target sooner rather than later, to re-anchor expectations.”
More specifically, Kganyago said that the MPC only sees inflation stabilising at the 4.5% target in the second quarter of 2025.
This feeds the overall narrative of “higher for longer” and gives credence to some analysts and economists’ expectations that the cutting cycle is only likely to start in early 2025.
However, Kganyago did note that this forecast is improved from the March meeting.
“This is an improvement on our March forecast, which only reached this milestone at the end of 2025,” he said.
“The changes to the outlook, however, are not large when compared to our March forecast. Average headline inflation for 2025 is only a tenth of a percentage point lower. Clearly, the task of achieving our inflation objective is not yet done,” he said.
“The forecast continues to see policy normalisation, with rates easing into more neutral territory by next year. As before, the rate path from the Quarterly Projection Model remains a broad policy guide, changing from meeting to meeting.”
On the economic outlook, the central bank said that economic activity indicators remain volatile, and for the first quarter, they have come in worse than expected, despite reduced electricity load shedding.
“However, we still forecast GDP growth of 1.2% this year.”
The full statement can be read here.
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