South African Reserve Bank Keeps Interest Rate Unchanged at 8.25%

The Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) decided on Wednesday to maintain the repo rate at 8.25%. The Governor of the SARB, Lesetja Kganyago, highlighted that this decision was reached unanimously, emphasizing the need for a restrictive policy stance to address lingering inflation expectations.

In a statement following the decision, SARB noted that headline inflation had surpassed expectations, reaching a year-on-year figure of 5.6% in February. This uptick was mainly driven by spikes in medical insurance premiums, with potential inflationary pressures from areas such as wages, education, and rental costs on the horizon.

Looking ahead, the central bank adjusted its inflation forecast, now projecting a delayed attainment of the midpoint of its target range at 4.5% by the end of 2025. While inflation expectations have slightly lowered, they remain elevated, posing a concern for the SARB.

Furthermore, SARB’s economic growth predictions for 2024 and 2025 were maintained at 1.2% and 1.4%, respectively. The occurrence of rolling power cuts continues to hinder growth estimates, with an expected reduction of 0.6 percentage points this year and 0.2 percentage points next year.

Analysts anticipate potential rate cuts in the third quarter of the year, with projections pointing towards a drop to 7.5% by November. This outlook translates to a series of three successive cuts from July through the end of the year, as indicated by a recent Reuters poll.

Despite the encouraging moderation in inflation expectations, the SARB remains vigilant in its approach, aligning policy decisions with data trends and the balance of risks in the economic landscape. Governor Kganyago affirmed the importance of stabilizing inflation to bolster the economic outlook and reduce borrowing costs.