Reserve Bank pauses interest rate hikes again

The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) voted to pause the interest rate hiking cycle again.

This decision means the repo rate will remain at 8.25% while the prime lending rate stands at 11.75%.

Unlike previous meetings, the decision was unanimous, as all members of the MPC preferred to keep the rate on hold.

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 the second quarter of the year, with inflation cooling since April and reaching an almost two-year low in June.

South Africa’s annual consumer price inflation (CPI) reached 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 upward trend continued in September and October, when inflation jumped to 5.4% and 5.9%, respectively.

While October’s CPI was still within the Reserve Bank’s target band, it is now on the upper end of the range.

These increases were largely driven by skyrocketing fuel prices in October, but experts believe the price cuts in November should temper this effect on November’s inflation data.

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, SARB Governor Lesetja Kganyago reiterated today.

Kganyago said risks to the inflation outlook are still assessed to the upside, as oil markets are tight and core inflation remains sticky.

He said serious upside risks to inflation remain, and MPC decisions will continue to be data-dependent.

However, the MPC revised its outlook for headline inflation in 2023 down slightly to 5.8%, from 5.9% previously.

The headline inflation forecast for 2024 is 5.0%, down from 5.1%, before stabilising at 4.5% in 2025 and 2026.


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