The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) voted to keep interest rates in the country unchanged for the second consecutive time on Thursday.
SARB Governor Lesetja Kganyago announced that the repurchase rate (repo rate) will be left unchanged, at 8.25%, which means that the prime lending rate also stays the same at 11.75%.
Kganyago said that two members of the MPC voted for an increase of 25 basis points, while three voted for rates to remain unchanged.
The Monetary Policy Committee decided to keep the repurchase rate at its current level of 8.25% per year, with effect from 22 September 2023. #SARBMPCSEP23 pic.twitter.com/yiacc3TJe0
— SA Reserve Bank (@SAReserveBank) September 21, 2023
Kganyago said during his announcement, “Since our last meeting, near-term prospects for the global economy are broadly unchanged. Inflation has eased over the course of the year, but a further slowdown in inflation looks less certain. Growth forecasts remain muted. The longer-term economic outlook is, however, clouded by persistent risks to the inflation trajectory, the negative effects of climate change and ongoing geopolitical tensions.”
“Despite considerable reprieve in the winter months, South Africa’s electricity load-shedding has increased and prices for commodity exports continue to weaken. In the near term, stronger El Niño conditions threaten the agricultural outlook, while global climatic events present additional risks. Energy and logistical constraints remain binding on the growth outlook, limiting economic activity and increasing costs,” the governor further stated.
Kganyago also said that supply and demand trends enabled an upward revision to the bank’s forecast for GDP growth to 0.7%, from the July figure of 0.4%.
“Our GDP growth forecast for 2024 and 2025 is unchanged from the previous meeting, at 1.0% and 1.1%, respectively,” he said.
Rand weakening
“The rand has weakened over the past year, depreciating by about 10% year to date against the US dollar, and is showing high volatility in response to risk-on and risk-off episodes. The implied starting point for the rand forecast is R18.45 to the US dollar, compared with R18.13 at the time of the previous meeting,” the governor said.
The trajectory of South Africa’s headline inflation rate has been shaped primarily by fuel and food prices, the governor said.
“Our food price inflation forecast for 2023 remains high and largely unchanged at 10.4%. The forecast for 2024 remains unchanged at 5.2%.Better monthly outcomes have led to a downward revision in our forecast for core inflation to 4.9% in 2023 and to 4.7% in 2024. The core inflation forecast for 2025 remains at 4.5%.” he stated.
Load shedding biggest risk to inflation
“In the absence of sustained increases in energy supply, electricity prices continue to present clear inflation risks. Load-shedding and logistics constraints may also have broader effects on the cost of doing business and the cost of living,” the governor said.
“Given uncertain fuel and food price inflation, considerable risk still attaches to the forecast for average salaries. Sticky inflation implies that average interest rates in major economies will remain high. As a result, tighter global financial conditions are likely to persist, raising the risk profile of economies needing foreign capital,” he said.
At the MPC’s last meeting in July, the rate was neither lifted nor dropped, as the slight easing of inflation allowed the SARB to keep the rate unchanged, albeit sitting at a high level.
The bank’s decision was in line with wide expectations that the rate would be left unchanged.
Consumer prices in South Africa, however, could continue rising until the end of the year as global oil prices are on a hike, leaving SARB little room to start cutting interest rates from the current 13-year high.
Statistics SA (Stats SA) said yesterday that the headline annual consumer inflation ticked up to 4.8% in August, up from 4.7% in July, after four consecutive months of decline.
Stats SA said the upward pressure came from the ‘food and non-alcoholic beverages’, ‘housing and utilities’ and ‘miscellaneous goods and services’ categories.
Stats SA’s Patrick Kelly said inflation for food and non-alcoholic beverages (NAB) continued to cool, taking some of the heat off the headline rate.
“Annual inflation for food and non-alcoholic beverages declined for a fifth straight month, softening from 9.9% in July to 8.0% in August. Except for fruit, all food and non-alcoholic beverages categories recorded lower annual rates in August,” he said.
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