Reserve Bank pledges relentless fight against inflation

South African Reserve Bank Governor Lesetja Kganyago said the central bank won’t hesitate to do what’s needed to preserve price stability. 

“There’s not one doubt that we will bring inflation down. It is a given,” he said at the SA Tomorrow 2023 event in New York on Friday to promote South Africa.

“The central bank is determined to protect the income of the poor”, and when inflation rises, we will tackle it, he said.

The Reserve Bank held interest rates at 8.25% in September while warning the outlook for inflation remains clouded by uncertainty.

Kganyago has repeatedly cautioned against prematurely declaring victory in the fight to bring price pressures under control.

Still, the inflation rate has declined from a 2022 peak of 7.8% and stood at 5.4% in September, somewhat above the midpoint of the central bank’s 3% to 6% target range, where it prefers to anchor price pressures.

Kganyago said risks to inflation include El Niño-induced weather conditions and climate change on food production, higher oil prices and currency fluctuations.

Should the risks materialize, the central bank will need to assess if they are temporary or lasting shocks, he said.

Policymakers must balance achieving their goal for price stability against a backdrop of persistently disappointing growth in Africa’s most industrialized nation, where an energy crisis and damaging logistics bottlenecks have held back the economy.

The government forecasts growth of a meagre 0.8% this year and 1% in 2024. Power outages that have hobbled output are expected to gradually ease next year, the Treasury said on Wednesday.

The central bank has previously estimated that South African growth would have been closer to 2% over the 2023-2025 period had it not been for power cuts, known locally as load-shedding.

Kganyago also touched on a debate currently circulating in South Africa for the Treasury to tap unrealized profits of R459 billion on the country’s foreign exchange reserves.

He said realizing the profit would force the central bank to sell some of the assets in the reserves, which could make the country more vulnerable to shocks and also hurt Reserve Bank capital.

The central bank oversees the Gold & Foreign Exchange Contingency Reserve Account, which contains unrealized profits or losses on the reserves that are incurred due to exchange rate fluctuations.

While the gains — and losses — accrue to the government, the Treasury has refrained from tapping them so far.

Finance Minister Enoch Godongwana said on Wednesday that the matter was being examined while acknowledging that it was a complex issue because “that thing is not hard cash.”


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