The South African Reserve Bank’s (SARB’s) Monetary Policy Committee (MPC) has voted to hold rates.<\/p>\n\n\n\n
This keeps the repo rate at 8.25%, with the prime lending rate at 11.75%. <\/p>\n\n\n\n
The hold on rates signals a pause in the SARB’s hike cycle that started in November 2021 – but does not mean the end of the cycle<\/strong>.<\/p>\n\n\n\n According to SARB governor Lesetja Kganyago, at the current repurchase rate level, policy is restrictive, consistent with elevated inflation expectations and the inflation outlook. <\/p>\n\n\n\n However, he warned that serious upside risks to the inflation outlook remain.<\/p>\n\n\n\n “In light of these risks, the MPC remains vigilant and decisions will continue to be data dependent and sensitive to the balance of risks to the outlook,” he said.<\/p>\n\n\n\n When asked whether interest rates have peaked, Kganyago said the answer is “a resounding no”.<\/p>\n\n\n\n “Further than this, it depends on what happens to inflation,” he said. “It depends on the data and risks.”<\/p>\n\n\n\n The hold was also a close call. Three members of the MPC preferred to keep rates on hold, and two preferred an increase of 25 basis points.<\/p>\n\n\n\n Kganyago said that, while inflation has come down and markets have found some stability, the long-term economic outlook remains cloudy.<\/p>\n\n\n\n The forecast for global growth is revised marginally higher to 2.5% for 2023 and remains unchanged at 2.7% in 2024.<\/p>\n\n\n\n For South Africa, while conditions appear to have improved, in reality, the situation remains uncertain, particularly with longer-term weather conditions and the impact of El Nina on the agricultural sector.<\/p>\n\n\n\n Despite this, the local GDP forecast is slightly higher at 0.4%, up from 0.3% from the previous meeting, he said. The forecast for 2024 and 2025 remain unchanged at 1.0% and 1.1%, respectively.<\/p>\n\n\n\n As with previous statements, Kganyaho highlighted that, without load shedding, the country’s growth prospects would be much higher. The prevailing energy crisis continues to weigh heavy on the economy.<\/p>\n\n\n\n At the same time, lower tax revenue, higher wages, and greater requirements for funding by state-owned companies are likely to keep borrowing costs high – also weighing on South Africa’s growth prospects.<\/p>\n\n\n\n On the more positive side, inflation is coming under control, with key pressures being revised lower.<\/p>\n\n\n\n Fuel price inflation is lower, and food price inflation has also been revised lower – although it remains high, globally. Electricity price inflation is unchanged, he said, but the instability of supply – especially load shedding – is a significant inflation risk for various sectors.<\/p>\n\n\n\n The headline inflation forecast is now seen as 5.4% for the year, within the SARB’s target range.<\/p>\n\n\n\n “Guiding inflation back towards the mid-point of the target band reduces the economic costs of high inflation and will achieve lower interest rates in the future. <\/p>\n\n\n\n “Since early 2020, the Committee has recommended additional and indirect means of lowering inflation that are within the reach of the public sector, including achieving a prudent public debt level, increasing the supply of energy, moderating administered price inflation and keeping wage growth in line with productivity gains. <\/p>\n\n\n\n “Such steps would strengthen monetary policy effectiveness and its transmission to the broader economy.”<\/p>\n\n\n\n\n
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