South Africa can expect higher interest rates for longer

Lesetja Kganyago

South African Reserve Bank (SARB) Governor Lesetja Kganyago said they only expect inflation to reach their target in the third quarter of 2025 and will only cut interest rates when inflation is anchored around that target.

Kganyago spoke to CNBC at the International Monetary Fund’s Springs Meetings, where he said the SARB’s job on the inflation front is not done yet.

Since the start of the current hiking cycle, the SARB’s Monetary Policy Committee (MPC) has been attempting to bring South Africa’s high, sticky inflation within its target range of 3% to 6%.

After lowering interest rates during the Covid-19 pandemic to provide relief for struggling households, the MPC started hiking in November 2021.

Since then, it has raised interest rates by a cumulative 475 basis points, with the repo rate now at a 15-year high of 8.25%.

Their efforts seemed to tame inflation for some time, with CPI reaching a low of 4.7% in June last year.

However, inflation has steadily increased since, with the latest inflation print for March 2024 showing CPI at 5.3%.

The MPC has kept interest rates unchanged since its May 2023 meeting but has emphasised that the hiking cycle is not necessarily done, and upside risks to the inflation outlook remain.

Kganyago has repeatedly said the SARB’s goal is to sustainably bring inflation down to 4.5%, the midpoint of its target range.

“Our baseline scenario is that we will get to target in the third quarter of 2025,” he said.

“Then we will reach 4.5%, which is what we are aiming for, and we would like to see it sustained for a period of time before we are convinced that the job on the inflation front is done.”

“But, at the moment, the job on the inflation front is not done.”

Kganyago specified that the MPC is not targeting interest rates – it is targeting inflation.

“We will be looking at what is happening to inflation, and if inflation returns to target and is sustained there, then we will need to recalibrate policy,” he said. “But that is not where we are at the moment.”

Investec chief economist Annabel Bishop recently warned that it is becoming increasingly likely that South Africa’s interest rates will only be cut in November this year, and there is a possibility of no rate cuts in 2024.

She referred to the SARB’s repeatedly stated policy of cutting interest rates only once CPI inflation comes down to and is sustainably anchored around 4.5% – the midpoint of its target range.

“This is increasingly looking like an interest rate cut will only materialise in November for South Africa instead of September,” Bishop said.

This is because CPI inflation is only likely to be at 4.5% for one month in September, while the inflation print is also delivered a month late, in October. 

“Indeed, there is a risk of no interest rate cut this year,” she warned.


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