South Africans must take their inflation medicine – SA Reserve Bank
The South African Reserve Bank (SARB) Governor Lesetja Kganyago said the country is suffering from a disease called inflation. The SARB is a doctor administering the repo rate as medication.
Kganyago told The Money Show’s Bruce Whitfield that South Africans have recently been struggling because the rand is buying less and less.
However, this is not because of the exchange rate but because the cost of living in the country is rising.
The SARB, with the assistance of other government agencies, has the primary responsibility to protect the value of the currency and the goods and services it can afford.
However, the Reserve Bank only has a few instruments at its disposal to do so, including one that borrowers do not like – the interest rate.
He compared the interest rate to medication and the SARB to a doctor.
“South Africa is suffering from the disease that is inflation, and our task as the doctor is to cure that disease. The medication we are administering is the repo rate,” he said.
“It is medication – you have got to take the medication. It might be bitter, but you will not be healed if you don’t take the medication.”
South Africa’s inflation increased markedly in 2022, averaging 6.9% across the year.
The Consumer Price Index (CPI) peaked at a 13-year high of 7.8% in June 2022 and moderated to 7.1% in March 2023. Food inflation currently stands at a 14-year high of 14.0%.
In March of this year, the SARB implemented its ninth consecutive interest rate hike in this hiking cycle to bring inflation within its target range.
The repo rate currently stands at a decade-long high of 7.75%.
Despite this high inflation and the SARB’s efforts to bring it down, South Africa is also experiencing muted growth and could even face a recession.
However, some experts have pointed out that the interest rate is insufficient to control inflation in the country, which is caused by other factors.
Chief economist at Sanlam Investments Arthur Kamp told Daily Investor that South Africa’s growth problem reflects failing infrastructure, too much government involvement in economic activity, policy uncertainty, and low business confidence.
However, the country’s sluggish growth and weak currency amidst high inflation places the SARB in a difficult position, as it needs to decide between curbing inflation or providing relief to an ailing economy.