Reserve Bank holds interest rates steady amid cooling inflation

The Reserve Bank has decided to keep the repo rate unchanged at 8.25%.

According to Reserve Bank governor Lesetja Kganyago’s announcement on Thursday, the prime lending rate will also stay at 11.75%.

This provides much-needed respite for financially burdened people suffering from “Janu-worry” after the frenetic holiday shopping season.

However, the central bank’s latest decision reflects a cautious approach to monetary policy, coinciding with a decline in consumer inflation in December.

According to Statistics South Africa, monthly inflation eased again in December, dropping 0.4 percentage points to 5.1%, as food price hikes slowed down.

Restrictive policy

Kganyago spoke about the status of the policy at the moment, stating that it is still restrictive in order to counteract high expectations for inflation and uncertainties in the economic outlook.

He also pointed out that significant upside risks to the inflation outlook continue to pose huge concerns.

“While headline inflation continues to ease in much of the world, core inflation remains sticky and high,” said Kganyago.

“Both advanced and emerging economies are likely to see modest economic growth this year, despite better-than-expected outcomes in 2023.

“In most countries, reaching inflation targets, reducing fiscal deficits, and containing or lowering debt levels will remain key policy priorities. Financing conditions are expected to remain tight.”

Uncertain economic outlook

“The longer-term economic outlook is also uncertain, as geo-political tensions and climate change threaten supply chains, output, and prices.

“This uncertainty, alongside high interest rates and debt, will dampen investor appetite and capital flows, resulting in volatile financial markets and asset prices.


“Taking these and other factors into account, the SARB’s [South African Reserve Bank] forecast expects relatively weak global growth of 2.6% in 2024.”

Kganyago stated that the increase in inflation, averaging 6.9% in 2022, led to heightened inflation expectations across various sectors for 2023.

According to Kganyago, the Bureau for Economic Research’s December survey revealed that the average inflation expectations for 2024 have increased to 5.7%.

“Achieving permanently lower inflation and interest rates requires inflation expectations to be closely anchored to the mid-point of the target band.”

Weak output growth

Along with electricity shortages, the governor also voiced concerns regarding the limitations imposed by port and rail operations, which in turn led to weak output growth and higher costs in the previous year.

“Against this backdrop, the MPC [bank’s monetary policy committee] decided to keep the repurchase rate at its current level of 8.25% per year. The decision was unanimous.”

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