Kganyago doesn’t see interest rate cuts amid sticky inflation

South African Central Bank Governor Lesetja Kganyago ruled out cutting interest rates while inflation remains persistent.

“Our real rates are not particularly high, and inflation has come down – it’s within target – but it is not quite where we would like to see it,” Kganyago said Tuesday in an interview on Bloomberg TV on the sidelines of the World Economic Forum in Davos.

“And if we are to make any policy adjustments, we would have to see that inflation has declined to our anchor, which is 4.5%.”

The South African Reserve Bank has held its benchmark interest rate unchanged at a 14-year-high of 8.25% since May 2023 and is expected to do so again when it meets next week.

While inflation moderated toward the end of last year, the Reserve Bank has repeatedly said it is not convinced that price pressures are slowing to the midpoint of its 3% to 6% target band in a sustainable manner. 

Inflation eased to 5.5% in November from 5.9% the prior month, primarily due to a sharp decline in fuel prices, although pressure in other categories, such as food, remains elevated.

December inflation data will be released on Jan. 24, one day before Kganyago announces the rate decision of the monetary policy committee.

Higher for longer

While pandemic-inflicted supply constraints responsible for propelling price pressures have eased, “inflation is still stubbornly high,” he said. “For it to be eventually conquered, we are going to have to keep rates higher for longer.”

The Reserve Bank will also watch South Africa’s public finances, which face spending pressures ahead of an election later this year in which the ruling ANC could lose its national majority for the first time since the end of White-minority rule in 1994.

The governor has repeatedly cautioned that the state of the country’s finances can dim the economic outlook and elevate borrowing costs.

The central bank has also called out the burden imposed on business by repeated power cuts and snarled infrastructure due to the poor performance of the country’s electricity utility, Eskom and port and freight-rail operator Transnet. 

Finance Minister Enoch Godongwana is expected to warn of the country’s deteriorating debt trajectory when he presents the annual budget later next month.

Kganyago declined to comment directly on the budget but said he took the Treasury at its word that it would keep the country on a sustainable fiscal path.

“I have got no reason to second guess them,” he said. “I have got every reason that if they have made a commitment, they will meet that commitment. But fiscal policy is not going to be easy this year.”


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