Reserve Bank and governor Lesetja Kganyago
The South African Reserve Bank’s monetary policy committee (MPC) has decided to hold the repo rate at 8.25%, citing elevated uncertainty.
The decision was unanimous and leaves the prime lending rate at 11.75% — the highest level since 2009.
Announcing the decision, which was widely expected, Reserve Bank governor Lesetja Kganyago said inflation outcomes were worse than expected early in the year and noted that the outlook remained uncertain globally.
The central bank aims to keep inflation within its 3% to 6% target range. The inflation rate eased, albeit slightly, in April to 5.2% year-on-year from 5.3% in March.
The MPC revised its inflation outlook, saying that it would probably reach the midpoint of its target range in the second quarter of 2025 — an improvement from its March forecast, which saw inflation reaching 4.5% at the end of next year.
“The changes to the outlook, however, are not large when compared to our March forecast,” Kganyago said.
“Average inflation for 2025 is only a tenth of a percentage point lower. The task of achieving our inflation objective is not yet done.”
The MPC also sees fuel price inflation to be higher in the near term but expects it will improve in 2025 — helping to bring inflation within target sooner.
“Nonetheless, the committee remains concerned that inflation expectations are elevated,” Kganyago said.
“Although the MPC assesses the inflation forecast risks to be broadly balanced at
present, high inflation expectations require that we deliver on our target sooner rather
than later, to re-anchor expectations,” he added.
Responding to questions on why the MPC’s inflation forecast risks are “broadly balanced”, Kganyago said inflation is susceptible to risks and prices could tilt higher amid geopolitical tensions. If conditions do not worsen, the outlook will remain balanced.
The economic growth outlook remains balanced, Kganyago said. This is despite worse-than-expected economic activity indicators coming out of the first quarter. First-quarter disappointments could be offset by better growth in the second quarter.
The MPC forecasts that the GDP will grow 1.2% this year.