South Africa’s central bank Governor Tito Mboweni said on Tuesday that above-target inflation meant that interest rates were more likely to rise than fall.
Noting that inflation was above the upper end of the central bank’s three to six percent target at 6,4%, Mboweni said: ”It really means that interest rates are unlikely to come down and it is more likely that they are going to go up.”
South Africa’s inflation has stayed above the Reserve Bank’s target band for three months since breaching it in April, when it rose to 6,3% year-on-year.
In response, the central bank’s Monetary Policy Committee (MPC) increased interest rates by 50 basis points in June to 9,5%, after leaving them unchanged in February and April, adding to a 200 basis points hike from June last year.
The MPC will meet again on August 15 and 16, when it is widely expected to raise rates again.
”I don’t know what the members of the MPC are going to decide next week, but I think it is more likely that they are not going to cut interest rates, and more likely they might increase,” Mboweni said at a breakfast meeting in East London.
He said household debt levels in South Africa were too high at 76% of disposable income and debt service costs were rising in step with higher interest rates.
Mboweni said higher rates could result in insolvencies and car repossessions, and he urged consumers to start living within their means.
Consumers have relied heavily on imports to feed their appetite for goods, putting pressure on the current account deficit, which narrowed marginally to 7% of gross domestic product in the first quarter.
Mboweni said manufacturing, the second largest sector of the economy, still trailed mining in exports.
”We are still relying predominantly on mining for exports, meaning that exports of manufacturing is lousy. That would explain quite clearly why we still have such a large current account deficit.”
Manufacturing contributes nearly 17% to the country’s economy. – Reuters