Reserve Bank hits pause on interest hikes again

The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) voted to pause interest rate hikes for a second time as South Africa’s inflation has cooled over recent months.

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.

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 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 was also the first time it had been within the SARB’s target range since April 2022.

Inflation continued to cool in July, reaching a two-year low of 4.7%. However, inflation rose for the first time in months in August, when CPI marginally increased to 4.8%.

This slight rise was mainly due to higher fuel prices and municipal tariff increases.

However, August’s CPI data remains within the SARB’s target range and close to the mid-point of this range (4.5%), around which the MPC wants to anchor inflation.

Today’s decision to pause aligns with expert expectations, as most believed the MPC would keep the repo rate unchanged.

However, this is not necessarily the end of the hiking cycle.

“Risks in the inflation outlook are assessed to the upside,” SARB Governor Lesetja Kganyago said today.

“At a global level, headline inflation continues to moderate, but food price inflation remains high, oil markets have tightened significantly, and core inflation looks sticky.”

He said the MPC expects headline inflation to rise slightly in the coming months before sustainably reverting to the mid-point of the target range in 2025.

However, Kganyago said better monthly outcomes have led to a downward revision in the MPC’s forecast for core inflation to 4.9% in 2023 (previously 5.2%) and to 4.7% in 2024 (from 4.9%).

The core inflation forecast for 2025 remains at 4.5%.