Reserve Bank’s work not done – Kganyago

Lesetja Kganyago

South African Reserve Bank Governor Lesetja Kganyago said, “The job of tackling inflation is not yet done”, and more interest rate hikes could be on the cards.

This comes after the Monetary Policy Committee (MPC) opted to keep South Africa’s repo rate stable at 8.25% for the second meeting in a row.

This decision was made on the back of better monthly outcomes, which have led to a downward revision in the MPC’s forecast for core inflation to 4.9% in 2023 (previously 5.2%).

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.

Despite this moderate increase, August’s CPI is still within the SARB’s target range of 3% to 6% and close to the midpoint of this range (4.5%), around which the MPC wants to anchor inflation.

While this likely factored into the MPC’s final decision, it was not unanimous, as three members preferred to keep the rate on hold, while the other two preferred a 25 basis point hike.

In his MPC Statement today, the Governor said risks to the inflation outlook are assessed to the upside. 

“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. 

“Despite the recent easing in some food price components, domestic food price inflation was still elevated at 8% in August, and the risk of drier weather conditions in coming months has increased.”

“We expect food price inflation to moderate further in the near term, but with high risk that it picks up later in 2024.”

He said in the absence of sustained increases in energy supply, electricity prices will also continue to present clear inflation risks. 

In addition, load-shedding and logistics constraints may also have broader effects on the cost of doing business and the cost of living.

“Given uncertain fuel and food price inflation, considerable risk still attaches to the forecast for average salaries,” he said.

“These risks remain, and should we see them materialise, we stand ready to act.”

He said it took a long time for inflation to cool down, and it was only in the June and July readings that the country saw significant moves downward. 

“The arrival of one swallow does not mean summer is here. You need to see more swallows in the sky to know that summer is here.”

He said the MPC expects the September and October inflation readings to be higher and that the committee would respond to that appropriately.

“High inflation begets high interest rates,” he warned. 


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