No interest rate relief for South Africans – yet

The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) voted to keep interest rates unchanged again at its latest meeting.

South Africa’s repo rate will, therefore, remain at 8.25% and the prime lending rate at 11.75%.

The decision was not unanimous, with four members taking an unchanged stance and two preferring a reduction of 25 basis points.

“In discussing the stance, MPC members agreed that restrictive policy remains appropriate to stabilise inflation at 4.5%,” Reserve Bank Governor Lesetja Kganyago said.

“The committee assessed that an unchanged stance remained appropriate, given the inflation risks. Some members, however, were of the view that the inflation outlook had improved enough to reduce the degree of restrictiveness.”

The decision to pause comes after months of the SARB trying to bring inflation under control and within its target range of 3% to 6%.

The current hiking cycle started in November 2021, but rates have remained unchanged since May 2023. The MPC has hiked interest rates by a cumulative 475 basis points since the start of the hiking cycle.

Their efforts started showing results by mid-2023, with inflation dipping to a two-year low in June. 

While inflation rose at the start of this year, it has since been on a downward trend, with the latest reading showing CPI at 5.2% in May.

While this is still in the top half of the SARB’s target range, Kganyago said the outlook, however, has improved somewhat.

“Headline consumer price inflation for this year is now projected at 4.9%, compared to 5.1% at the previous meeting,” he said.

“Over the next few quarters, headline is expected to dip below the 4.5% midpoint, mainly because of fuel and food prices.” He said this outlook is supported by the stronger rand.

Today’s decision by the MPC 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 repeatedly said the MPC would like to see inflation come down sustainably and be anchored around the mid-point of the target range – 4.5% – before they will consider cutting rates.

Experts expect this will take place in the second half of the year.

“Domestically, inflation expectations do not yet reflect the 4.5% midpoint objective over the medium term. While expectations are moving in the right direction, they continue to show the impact of the recent inflation surge,” Kganyago said.

“The forecast continues to see rates easing into more neutral territory by next year. As before, the rate path from the Quarterly Projection Model remains a broad policy guide, changing from meeting to meeting.”

“Decisions of the MPC will continue to be data dependent and sensitive to the balance of risks to the outlook.”