Reserve Bank set to hold rates despite tamer inflation

Lesetja Kganyago

South Africa’s central bank is poised to keep interest rates on hold at its first meeting of the year and may give no hint that policy easing is coming soon, despite tamer inflation.

All 19 economists in a Bloomberg survey expect Governor Lesetja Kganyago’s monetary policy committee to leave rates at 8.25% on Thursday, despite inflation slowing more than anticipated in December. The central bank will deliver the decision shortly after 3 p.m. Johannesburg time.

Although inflation cooled by more than expected to 5.1% last month, it remained above the midpoint of the reserve bank’s 3% to 6% target band, where it prefers to anchor inflation expectations.

Policymakers have also been keeping a watchful eye on food inflation, which remains elevated at 8.5%.

The stickiness of inflation will likely disappoint policymakers, encouraging them to pause rates for a fourth straight meeting, said Elize Kruger, an independent economist.

A hold will be justified by a mix of risk factors, including rand weakness and geopolitical uncertainties, she said.

“I expect a fairly hawkish tone in the MPC statement, signalling that the MPC would be willing to sit on their hands for some more months and that they do not feel in a hurry to cut rates,” she said.

The central bank tightened policy by 475 basis points in a rate-hike campaign that started in November 2021 before pausing in July.

While most analysts anticipate the tone of the panel members to be cautious, Crystal Huntley, an economist at lender Nedbank Group Ltd., who forecasts a hold, said the central bank has done enough to contain inflation.

The MPC meeting will be the first since Deputy Governor Kuben Naidoo went on garden leave in December, leaving four members on the panel.

His vacancy creates room for a split decision, in which case Kganyago has the deciding vote. Seven economists in a Bloomberg poll predict the MPC members will vote unanimously to leave rates unchanged.

In a Jan. 16 Bloomberg TV interview, Kganyago cautioned inflation remains persistent, vowing that borrowing costs will have to be kept higher for longer until it is conquered.

“It’s within target – but it is not quite where we would like to see it,” he said.

Jee-A van der Linde, senior economist at Oxford Economics Africa, who predicts the key rate to end the year at 7.75%, expects the central bank to start easing in the third quarter.

“The main reason for this comes down to our revision for US rate cuts with the Fed now forecast to start reducing rates in May,” Van der Linde said.

“In general, policy easing in South Africa for 2024 is set to be less pronounced than in other EM and advanced economies.”


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