Interest rates unchanged despite inflation outlook improving
South African Reserve Bank governor Lesetja Kganyago says the bank's decision-making will be taken on a meeting-by-meeting basis.
Image: Thobile Mathonsi | Independent Newspapers
The South African Reserve Bank has kept the prime lending rate at 10.25%, with two members favouring a 0.25 percentage point cut and four preferring a hold.
Lesetja Kganyago, Governor of the South African Reserve Bank (SARB), said that the backdrop to the decision was that the risks to the inflation outlook were balanced.
Ahead of the announcement, there were hopes that the rates would come down to help boost economic growth.
At the most, however, economists and business leaders were expecting a 0.25 percentage point decrease. The rate has been cut a cumulative 1.25 percentage points since September 2024.
Johann Els, chief economist at PSG Financial Services, said earlier this week that he expected more rate cuts this year, with the possibility of one today.
Investec chief economist Annabel Bishop noted that financial markets had priced in a 44% probability of a 0.25 percentage point cut occurring in the repo rate today, ahead of the announcement.
While this was still below a 50% likelihood, it was up from only a 20% probability a week ago, Bishop said.
On prices, Kganyago said, “inflation last year was 3.2%, close to our 3% objective. Inflation was a bit higher towards the end of the year, mainly because of temporary factors. The December print came in at 3.6%. However, we expect this was the peak, and that inflation will slow from here.”
Even though South Africa is benefiting from a much stronger rand – at levels last seen in mid-2022 – and there is a lower oil price assumption, food could unsettle the basket, said Kganyago.
“We are, however, keeping an eye on food inflation, especially meat prices, which are being affected by a serious outbreak of foot and mouth disease. We are also concerned about electricity prices, given that NERSA’s [National Energy Regulator of South Africa’s] price correction may rise from R54 billion to R76 billion."
Kganyago also noted that SARB’s model anticipates interest rates to be cut gradually as inflation comes down.
“Our decisions will continue to be taken on a meeting-by-meeting basis, with careful attention to the outlook, data outcomes, and the balance of risks to the forecast,” Kganyago said.
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