Interest rate cuts will not solve South Africa’s economic woes

South Africa’s Reserve Bank Governor, Lesetja Kganyago, said lowering interest rates is not the solution to the country’s chronic inequality, while low inflation is a pre-requisite for economic growth over the medium term.

“There is only so much that can be achieved with monetary policy,” Kganyago told an audience on Thursday at the University of Free State in Bloemfontein.

“Changing interest rates is certainly easier than improving education, managing urbanisation or ending load-shedding,” he said. “What really matters for inequality is economic growth, job creation and productivity growth.”

The central bank left its benchmark interest rate at a 15-year high of 8.25% at its July meeting, maintaining a restrictive policy stance to curb inflation which remains higher than it desires.

But the decision was split with two of the six members of the monetary policy committee preferring a 25 basis point cut, signaling officials were beginning to discuss the case for easing. It will deliver its next policy decision on Sept. 19.

Kganyago, at the time, said the inflation outlook had somewhat improved while noting that the MPC had brought forward its expectation for when consumer prices will settle at the 4.5% midpoint of the bank’s target band where it prefers to anchor expectations. 

The central bank has repeatedly stressed that it won’t adjust its policy until it has confidence that inflation is under control, which rose at an annual rate of 5.1% in June.

It now sees price pressures slowing to below 4.5% in the fourth quarter, a significant improvement from its May forecast, which didn’t see that happening until the second quarter of 2025.

“Keeping inflation low and stable supports growth in the medium to long run,” Kganyago said on Thursday.