Reserve Bank interest rate relief

The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) voted to pause interest rate hikes for the first time since the current hiking cycle started in November 2021.

This decision means the repo rate will remain at 8.25% while the prime lending rate stands at 11.75%.

The decision was not unanimous, as three members of the MPC preferred to keep the rate on hold, while the other two preferred a 25 basis point hike.

“Headline inflation returned to the upper end of the inflation target range in June and is forecast to sustainably revert to the mid-point of the target range by the third quarter of 2025,” said SARB governor Lesetja Kganyago today.

“The forecast takes into account the policy rate trajectory indicated by the Bank’s Quarterly Projection Model (QPM).”

The Reserve Bank has been attempting to bring inflation down and within its target range of 3% to 6% since the hiking cycle started in November 2021.

Its efforts have started to yield results in recent months, with inflation cooling since April and reaching an almost two-year low in June.

South Africa’s annual consumer price inflation (CPI) reached a low of 5.4% in June – the lowest it has been since October 2021. This is also the first time inflation has been within the SARB’s target range since April 2022.

The country’s high inflation has been largely driven by sticky food and fuel inflation. The latest CPI data indicated a slight cooling of food inflation, contributing 2.1 percentage points to CPI in May and only 1.9 percentage points in June.

June’s data saw food and non-alcoholic beverage prices cool for the third month – from 14% in March to 11% in June.

This positive data contributed to the MPC’s decision today, and the SARB lowered its headline inflation forecast for 2023 down to 6% from 6.2%.

This is largely due to lower food, fuel and electricity inflation, which were also revised downward.

Today’s decision to pause is not in line with expert expectations, as many predicted the cautious MPC would hike by another 25 basis points.

Despite positive signs of inflation coming down, many believed the MPC would remain hawkish and continue the hiking cycle for one more meeting.

Kganyago said the committee will remain vigilant as there are several upside risks to inflation.

“At the current repurchase rate level, policy is restrictive, consistent with elevated inflation expectations and the inflation outlook,” he said.

“Serious upside risks to the inflation outlook remain. In light of these risks, the Committee remains vigilant, and decisions will continue to be data-dependent and sensitive to the balance of risks to the outlook.”


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