Inflation is the enemy, not high interest rates – Kganyago 

South African Reserve Bank (SARB) Governor Lesetja Kganyago said that while South Africans have felt the impact of the country’s high interest rates, inflation is the biggest enemy.

In November 2021, the Monetary Policy Committee (MPC) started its current hiking cycle, in which it has raised the repo rate by a cumulative 475 basis points, bringing it to a 14-year high of 8.25%.

Kganyago told CNBC Africa that there had been positive and negative consequences of South Africa’s high interest rates.

Kganyago said these hikes have reigned in the country’s inflation because the Reserve Bank acted early when it became clear that inflation was on an upward trend.

“We managed to reign in inflation. The policy rate did rise but it has so far only gone up to 8.25%,” Kganyago said.

He emphasised that this is far lower than the peaks repo rates have reached historically when the Reserve Bank has had to reign in inflation.

“The reason they peaked lower is because of the credibility of the monetary policy authority,” he said.

“The South African Reserve Bank has demonstrated its credential in reigning in inflation because inflation erodes the income of working people, and that is what we had to deal with.”

However, he acknowledged that the MPC’s hikes came with a cost, as consumers have flet the strain on their pockets.

For example, Kganyago said the bank has noticed an increase in non-performing loans within the banking sector.

“Households do feel these things, but the biggest enemy was inflation; it was not that interest rates were going up,” he said.

“Interest rates were going up to deal with inflation that was eroding their income.”

Kganyago has previously compared inflation to an illness and interest rates the the medicine needed to cure it.

“South Africa is suffering from the disease that is inflation, and our task as the doctor is to cure that disease. The medication we are administering is the repo rate,” he said.

“It is medication – you have got to take the medication. It might be bitter, but you will not be healed if you don’t take the medication.”


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