Reserve Bank to keep interest rates higher for longer

Lesetja Kganyago

The South African Reserve Bank will likely leave the benchmark interest rate unchanged for a third straight meeting while signalling it will delay easing monetary policy amid lingering risks to the inflation outlook.

All 22 economists in a Bloomberg survey expect Governor Lesetja Kganyago’s monetary policy committee to leave rates at 8.25% on Thursday, with inflation that quickened more than anticipated in October forecast to soften.

The decision is expected shortly after 3 p.m. Johannesburg time.

Annual inflation last month edged closer to the top of the central bank’s 3% to 6% target range and further away from the midpoint where it prefers to anchor expectations.

But policymakers are unlikely to be shocked by the latest inflation reading, said Isaac Matshego, senior economist at Nedbank’s economic unit, who expects a hold.

“The big influence on the SARB’s decision will be the better rand,” said Matshego. “The outlook on inflation has improved slightly. Inflation is under control despite rising in August and September, and we expect it to ease in the coming months due to the stronger rand and lower fuel prices.”

The central bank, in a tightening cycle that started in November 2021, has hiked rates by a cumulative 475 basis points in 10 straight meetings before pausing in July.

Still, economists expect the tone of the MPC statement to remain cautious.

Policy peak

“We believe the policy rate has peaked and expect a hawkish hold from the central bank this week,” said Yvonne Mhango, Africa economist at Bloomberg Economics.  

Kganyago has consistently hewed to a hawkish line on price pressures, stressing that it is premature to declare victory in the battle to contain inflation, dividing economists on when the MPC will start rate cuts.

Forecasts range from the first quarter to the third quarter of 2024, depending on economists’ assessment of inflation risks. 

The five-member MPC’s decision is likely to be split. The most popular view among economists is for a four-one split to keep the benchmark rate unchanged.

Investors will also seek guidance on when Deputy Governor Kuben Naidoo, whose decision to quit his post was made public a month ago, will step down.


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