Reserve Bank governor Lesetja Kganyago. (Waldo Swiegers/Bloomberg via Getty Images)
The South African Reserve Bank held interest rates at 7.5%, citing global economic uncertainty and upside risks to inflation, governor Lesetja Kganyago announced on Thursday.
The widely expected decision was split between the committee members, with two members favouring a 25 basis point cut, and four preferring the decision to hold.
The prime interest rate stays at 11%.
“For several quarters we have enjoyed rising confidence in South Africa, with a smaller country risk premium and lower bond yields. However, the global economy is not on a stable footing and there are also domestic uncertainties, which put these favourable trends at risk. This calls for a cautious policy approach,” said Kganyago.
Trade tensions, shifts in longstanding geopolitical relationships and elevated inflation in advanced countries including the United States, Euro members and the United Kingdom were flagged as concerns.
While domestic inflation is still below the 4.5% midpoint of the Reserve Bank’s 3-6% target band, he noted it edged higher during the past few months.
Annual consumer inflation was unchanged at 3.2% in February, with increases coming from housing and utilities, food and alcoholic beverages and restaurants and accommodation offset by decreases in the services sector.
“We continue to see low inflation for goods, which is likely to be temporary. Services inflation is somewhat higher, but still below the 4.5% target midpoint,” Kganyago said.
He cautioned that inflation expectations are close to the midpoint, but for now inflation “appears to be contained”.
“The overall result of these changes is a marginally lower inflation outlook, with headline now projected at 3.6% this year and 4.5% next year.”
Kganyago attributed this to the better fuel-price projections, which also reflects a more “benign path for administered prices, given the lower electricity tariffs announced by Nersa [National Energy Regulator of South Africa] in February”.
“These factors offset pressure from the proposed VAT increases, which we think will add about 0.2 percentage points to headline inflation.”
Kganyago said risks to this projection are both on the upside and downside, “with the balance of risks in the medium term skewed to the upside”.
Although the economy expanded by 0.6% in the fourth quarter of 2024, Kganyago said the overall growth picture “was disappointing, with other sectors showing weakness”.
Overall growth in 2024 was 0.6%, marginally below the bank’s expectations and below that of 2023.
The bank revised its 2025 economic growth forecast slightly to 1.7%.
“We attribute lower growth partly to subdued demand, and partly to lingering supply-side fragilities,” he said.
Standard Bank economist Elna Moolman said the decision to hold the interest rate was a disappointment for consumers who were hoping for another interest rate cut, but she said “it is still plausible that the Reserve Bank could cut interest rates again later this year”.
Investec expects two cuts, one in July and then another 25 basis point cut in November.
The Reserve Bank’s monetary policy committee meets again in May.