SARB holds repo rate steady amid persistent inflation pressures

The South African Reserve Bank (SARB) has opted to maintain its key repo rate at 8.25%, marking the fifth consecutive decision to hold steady. This following the bank’s March Monetary Policy Committee (MPC) meeting.

The decision keeps South Africa’s benchmark rate at a 15-year high, with the prime lending rate of local commercial banks remaining unchanged at 11.75%.

Rising inflationary pressures

The hold on the repo rate comes amidst rising inflationary pressures, with the country’s annual inflation rate climbing to 5.6% in February. This marked a four-month high and exceeded market forecasts.

The surge in inflation further deviates from the Reserve Bank’s preferred 4.5% midpoint within the 3–6% target range.

SARB Governor Lesetja Kganyago on Wednesday cited persistent global inflation pressures as a contributing factor. He noted that while headline inflation rates have moderated compared to the previous year, underlying inflation remains elevated.

He emphasised the challenges faced by various economies, particularly in services, amid ongoing supply disruptions.

Supply-side issues

Regarding South Africa’s economic performance, Kganyago acknowledged a lacklustre fourth quarter of the previous year. With the economy expanding by just 0.1%. He cited supply-side issues including electricity, load shedding, constraints in ports and rail systems as significant impediments to growth.

However, there is cautious optimism for a modest growth acceleration in the coming years as supply-side constraints ease. He noted that forecasts suggest a gradual improvement. With GDP growth projected at 1.2% for the current year, rising to 1.6% by 2026. Despite these projections, growth rates are expected to remain below longer-term averages.

Nearer the top of target range

“The most recent inflation numbers showed yet another delay on the way back to our 4.5% objective, with headline up to 5.6% in February. This is nearer the top of our target range than the midpoint.

“We still see headline inflation heading back to 4.5%. However, given extra inflation pressure, headline now reaches the target midpoint only at the end of 2025. This is later than previously expected. As a result, the policy rate in our baseline forecast also starts normalising later,” said the governor.

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