South Africa’s interest rates paused again

The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) voted to pause the interest rate hiking cycle for the fifth meeting in a row.

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

The decision was unanimous, as all five members of the MPC preferred to keep the rate on hold.

“On balance, the various risks to the inflation forecast are skewed to the upside,” SARB Governor Lesetja Kganyago said at today’s meeting.

He highlighted food prices as a large contributing factor, saying, “We are at a difficult juncture”.

“Last year, food inflation hit its highest levels since 2008. Food inflation has now slowed,” he said.

“But this is a critical time in the growing season, and it has been unusually hot and dry, which may cause food inflation to pick up again.”

The decision to pause comes after months of effort to bring inflation under control and within the SARB’s target range of 3% to 6% since the hiking cycle started in November 2021.

The hiking cycle, which began in November 2021, started showing results by mid-2023, with inflation dipping to a two-year low in June. 

However, inflation has been on a slight upward trajectory since, reaching a high of 5.6% in February this year.

a temporary uptick in the later months of the year before resuming its downward trend in November and December.

Today’s decision to pause aligns with most experts’ predictions, who forecasted higher for longer interest rates and believe a cut will likely only come in the second half of this year. 

Kganyago has cautioned that this might not be the end of the hiking cycle. 

The MPC is aiming for inflation to come down sustainably and be anchored around the mid-point of its range, 4.5%. 

Many experts believe this could occur in the latter half of 2024, potentially influenced by the US Federal Reserve’s decisions.