Lesetja Kganyago. (Waldo Swiegers/Bloomberg via Getty Images)
The monetary policy committee (MPC) has kept the repo rate unchanged, with the South African Reserve Bank’s governor, Lesetja Kganyago, saying the “battle against inflation is not yet won”.
The central bank has left the repo rate at 8.25% with the domestic prime interest rate remaining at 11.75%.
This was not a unanimous decision — two members of the committee voted for a reduction of 25 basis points, while the other four wanted to keep the repo rate unchanged.
Kganyago said MPC members agreed that restrictive monetary policy was appropriate to stabilise inflation at the 4.5% midpoint of the target range.
“The committee assessed that an unchanged stance remained appropriate, given the inflation risks. However, some members were of the view that the inflation outlook had improved enough to reduce the degree of restrictiveness. Inflation expectations do not yet reflect the 4.5% midpoint objectives over the medium term,” he said.
Consumer inflation came in at 5.2% in May, according to Statistics South Africa. The transport category accelerated to its highest rate since October 2023, as a result of fuel price increases. Petrol and diesel prices have increased by 9.3% on average over the past 12 months, according to Stats SA.
Kganyago said the bank was committed to stabilising inflation at the midpoint of the target band and that achieving this would improve the economic outlook and reduce borrowing costs.
“We see rates easing into more neutral territory by next year,” he said.
The interest rate decision is largely in line with forecasts by economists — although Nedbank and Investec expected the MPC to initiate rate cuts in July, given the election jitters, as well as the view that the US Federal Reserve would only start easing monetary policy in June, the Mail & Guardian previously reported.
At a Standard Bank event on Thursday morning, Kevin Lings, the chief economist at Stanlib, predicted that interest rates would remain unchanged.
“The reserve bank has been conservative in their approach to monetary policy and to interest rates broadly. Part of that was the proximity of the election and a part of it is this desire to get inflation anchored at 4.5% and not at the top end of the target and I think that’s appropriate,” he said.
South Africa’s official target is 3% to 6% but the reserve bank has made the midpoint its effective target.
“There are 38 countries that have started cutting interest rates around the world. I know that we focus on the US and the US hasn’t started but there are a number of countries that have started cutting rates,” Lings said.
He used the example of Chile and Brazil, which, like South Africa, are emerging market economies. “Chile has cut rates eight times in the last year. Brazil has cut rates. There is a whole range of emerging markets that have not been waiting for the US. So, we are conservative in terms of our approach.”
Lings said inflation is expected to come down in the coming months and that will open the opportunity to cut interest rates. “I see a cut in September.”
Standard Bank chief economist Goolam Ballim predicted the first rate cut will be in September and it will be 25 basis points and then there will be a cumulative one percentage point cut over the next 12 months.
The next repo rate announcement is on 19 September.