SA Reserve Bank sheds light on interest rate hikes and future rate cuts

South African Reserve Bank (SARB) deputy governor Rashad Cassim said the SARB would continue to hike interest rates and only implement rate cuts once they can bring inflation down.

In a recent radio interview, Cassim appealed to the public to understand that “there are times where we will reduce interest rates once we can keep inflation in check”.

He reiterated that, aside from price stability, the SARB’s main goal is to manage inflation and keep it stable, which the Reserve Bank sets at 4.5% – the midpoint of its 3% to 6% target band.

To keep inflation in check, the Reserve Bank must, unfortunately, hike the interest rate.

“We have to do so in a very responsible manner, but in the long run, as our governor always says, ‘High inflation means high interest rates’.”

The SARB is currently in a hiking cycle which started in November 2021. Since the cycle started, the Reserve Bank has implemented 10 rate hikes and a cumulative 475 basis points of hikes.

The country’s inflation rate has largely been high and sticky, remaining above 7%. However, some hope is on the horizon as April’s annual consumer price inflation was 6.8%, down from 7.1% in March.

This could be a sign that the rate hikes are starting to have an effect. However, the SARB still forecasts headline inflation to remain above the upper end of the inflation target range until the third quarter of this year.

SARB governor Lesetja Kganyago said headline inflation will only sustainably revert to the midpoint of its target range by the second quarter of 2025.

Two of the largest drivers of inflation are food and oil prices. Cassim said the SARB could not control these drivers, as they have been affected by factors outside the SARB’s control, such as load-shedding and the Russia-Ukraine war.

The weakening currency is another driver of inflation, which the SARB has no direct influence on.

Cassim said the right agencies in society should communicate more clearly what will be done about the problem of load-shedding. 

“Once investors know that we have a plan, that we are serious about sorting out these issues, the exchange rate will pick up a bit, and that will put less pressure on inflation,” he said.