Reserve Bank Governor warns of potential November interest rate hike

South Africans should prepare for a potential interest rate hike in November, as inflation is on the rise with risks to the upside.

South African Reserve Bank (SARB) Governor Lesetja Kganyago spoke at the most recent PSG Thing Big Series.

At the event, he said that, even as inflation has come down, there are risks to the inflation outlook.

“Amongst the risks we have identified have been the oil price, food prices and the possibility of inflation affecting the exchange rate.”

If the Monetary Policy Committee (MPC) were to raise the interest rate at its November meeting, it would be the 11th interest rate hike in the current cycle.

Since the hiking cycle started in November 2021, the MPC has implemented 10 consecutive interest rate hikes, bringing the repo rate to 8.25%.

However, at its July meeting, the committee decided to pause the hiking cycle and kept it paused at its September meeting.

Despite deciding to pause, Kganaygo warned at the September meeting that upside risks to the inflation outlook remain.

In particular, he is concerned about the country’s high food inflation, the volatile oil market and sticky core inflation.

“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.”

At the PSG Wealth event, Kganyago said it is highly likely that interest rates will have to be raised again at the November MPC meeting.

In addition, he reiterated that interest rates will remain higher for longer, and the country will likely only see interest rate cuts in late 2024.

This is a slightly more pessimistic outlook than many experts who have predicted that interest rates will be cut in early to mid-2024.

Kganyago said in the interview that inflation has proved more persistent than central bankers around the world initially thought.

He said this was especially true in advanced economies, likely because emerging markets moved earlier than those economies when inflation started rising.

However, he said interest rates globally will remain higher for longer.

“The only thing that makes central banks increase interest rates is inflation going up,” he said.

“The higher the inflation, the higher the interest rates.”