High interest rate pain will end – Kganyago

Pain from South Africa’s high-interest rates will ease as inflation slows, said Reserve Bank Governor Lesetja Kganyago, while warning that price pressures may prove stubborn.

“This will come to an end at some point,” he said Wednesday in an interview on 702 Radio. “What will that point be? It would be the point where we see that inflation is converging towards what we consider to be a level that is consistent with price stability, which for us is 4.5%.”

The yield on 10-year notes fell as much as 8 basis points before the governor spoke but pared the drop to trade little changed at 11.79% by 2:45 p.m. in Johannesburg.

Forward-rate agreements — used to speculate on borrowing costs — show traders are pricing in a 52% chance of a 25 basis-point hike when the central bank’s monetary policy committee delivers its next rate decision on July 20, down from 60% immediately after the governor spoke.

South Africa’s consumer price index rose an annual 6.3% in May from 6.8% a month earlier.

Kganyago said he expects it to drop under 6% in June and to average close to that level for 2023 as a whole. The central bank wants inflation in the middle of its 3% to 6% range.

CPI data for last month will be released on July 19, a day before the central bank’s MPC concludes its next scheduled meeting.

Officials have increased their key rate by 475 basis points to 8.25%, its highest level in 14 years, since they started tightening in November 2021 to combat surging prices.

Kganyago declined to signal what he and his colleagues would decide at the meeting, though he acknowledged South Africans don’t like high borrowing costs.

But he said people were being hurt worse by rising prices while laying out a number of headwinds to bring them under control that lies outside the ambit of the central bank.

“We have got to sort out that national logistics system so that the movement of goods is affordable once again,” Kganyago said.

Farmers “cannot get their products into the market because of constraints in rail and so forth. And so they are having to use trucks on the road, and those are more expensive and so forth. And they all feed into inflation.”

State-owned ports and rail operator Transnet SOC Ltd.’s services have been regularly disrupted by vandalism and a shortage of parts.

An even bigger problem has been the inability of state power utility Eskom to keep the country’s lights on. It frequently implements power cuts, known locally as load-shedding, because its ageing and poorly maintained plants can’t meet demand.