/ 27 March 2024

MPC holds repo rate at multi-year high

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Reserve Bank governor Lesetja Kganyago

The monetary policy committee (MPC) has opted to keep the repo rate unchanged, citing inflation’s slower return to the midpoint of the South African Reserve Bank’s target band.

The decision to leave the repo rate at 8.25% was unanimous. The domestic prime interest rate has been set at 11.75% since May 2023.

Responding to questions about the prospect of a future repo rate cut, Reserve Bank governor Lesetja Kganyago said the MPC will be looking for the inflation rate to make a sustained return towards the midpoint of its 3% to 6% target range.

Ahead of Wednesday’s announcement, economists said the MPC would probably only initiate cuts in three month’s time.

“The deliberations are always rigorous,” Kganyago later added, reflecting on Wednesday’s unanimous decision.

“And what is not in doubt is that we consider all angles and eventually arrive at a decision. So it is never easy. It is always great to say that we’ve got unanimity, but we do not always strive for unanimity. We actually sometimes take pride that we come to you and say that there were different views in the committee.”

The MPC announcement comes a week after South Africa’s annual inflation rate surprised on the upside, accelerating to 5.6% in February — the highest level in four months.

Wednesday’s MPC statement noted that although inflation accelerated more gradually in South Africa than in many other countries, the return to the Reserve Bank’s midpoint target has been slow. The February inflation rate is closer to the ceiling of the bank’s target range.

Despite an acceleration in core inflation — which in February hit the highest level since 2019 — the MPC still sees the headline number heading back to 4.5%. That said, this retreat to the midpoint is now only expected to happen at the end of 2025, later than previously expected.

The MPC’s statement highlighted upside risks to food price inflation, noting that “we are at a difficult juncture”. 

This is in the wake of an unusually hot and dry growing season. The Reserve Bank has warned that El Niño may cause food inflation to pick up again, reversing the progress that has been made since prices hit multi-year highs last year.

The next repo rate announcement is on 30 May — the day after South Africans will head to the polls to vote in the general elections.