Reserve Bank governor Lesetja Kganyago announced on Thursday that all five of the central bank’s monetary policy committee members had voted to keep the repo rate steady at 8.25% as the Bank continues with its policy of inflation targeting.
“Achieving permanently lower inflation and interest rates requires inflation expectations to be closely anchored to the midpoint of the target band. Against this backdrop, the MPC [Monetary Policy Committee] decided to keep the repurchase rate at its current level of 8.25% per year. The decision was unanimous,” he said.
Despite the easing of inflation, economists widely expected the MPC to keep the rate on hold at 8.25%. Kganyago said at the current repo rate level, policy would be restrictive, consistent with the inflation outlook and the need to address rising inflation expectations.
“Since early 2020 the committee has recommended additional means of strengthening economic conditions, including achieving a prudent public debt level, increasing the supply of energy, keeping administered price inflation low and real wage growth in line with productivity gains.
“Such steps would also strengthen monetary policy effectiveness and its transmission into the broader economy,” he said.
He said guiding inflation expectations back towards the midpoint of the target band will improve the economic outlook and reduce borrowing costs.
He said global economic conditions were mixed, with the outlook remaining uncertain.
“While headline inflation continues to ease in much of the world, core inflation remains sticky and high. Both advanced and emerging economies are likely to see modest economic growth this year despite better-than-expected outcomes in 2023,” he said.
He added that in most countries reaching inflation targets, reducing fiscal deficits and lowering debt will remain key policy priorities as financing conditions remain tight in a longer outlook of uncertainty.
He said South Africa faced a number of challenges in the global economy, including commodity export prices falling 27% last year with an expectation that they will fall a further 12% this year.
The rand depreciated 11% against the dollar in the past year while fuel price inflation was expected to be low, averaging below 1%.
He warned that domestic food price inflation remains unpredictable and high.
“The rise in inflation in 2022 generally resulted in higher inflation expectations across markets, businesses and households in 2023. Medium and longer-term market expectations for inflation remain elevated,” he said.
He said while the MPC expected South Africa to show improved fourth-quarter GDP data, a general weaker performance of the economy in the latter half of 2023 was in line with the Bank's forecast.
“The operation of ports and rail has become a serious constraint and, alongside electricity shortages, contributed to weak output growth and higher costs last year. These constraints are expected to persist, severely limiting potential growth of the economy,” he said.
He said GDP growth forecast for 2024/25 was revised downward since November from 0.8% to 0.6% with GDP growth estimated at 1.2% in 2024 and 1.3% in 2025.
Kganyago introduced David Fowkes, the newest MPC member.
TimesLIVE
Reserve Bank keeps repo rate at 8.25%, sticks with inflation targeting
Image: Freddy Mavunda
Reserve Bank governor Lesetja Kganyago announced on Thursday that all five of the central bank’s monetary policy committee members had voted to keep the repo rate steady at 8.25% as the Bank continues with its policy of inflation targeting.
“Achieving permanently lower inflation and interest rates requires inflation expectations to be closely anchored to the midpoint of the target band. Against this backdrop, the MPC [Monetary Policy Committee] decided to keep the repurchase rate at its current level of 8.25% per year. The decision was unanimous,” he said.
Despite the easing of inflation, economists widely expected the MPC to keep the rate on hold at 8.25%. Kganyago said at the current repo rate level, policy would be restrictive, consistent with the inflation outlook and the need to address rising inflation expectations.
“Since early 2020 the committee has recommended additional means of strengthening economic conditions, including achieving a prudent public debt level, increasing the supply of energy, keeping administered price inflation low and real wage growth in line with productivity gains.
“Such steps would also strengthen monetary policy effectiveness and its transmission into the broader economy,” he said.
He said guiding inflation expectations back towards the midpoint of the target band will improve the economic outlook and reduce borrowing costs.
He said global economic conditions were mixed, with the outlook remaining uncertain.
“While headline inflation continues to ease in much of the world, core inflation remains sticky and high. Both advanced and emerging economies are likely to see modest economic growth this year despite better-than-expected outcomes in 2023,” he said.
He added that in most countries reaching inflation targets, reducing fiscal deficits and lowering debt will remain key policy priorities as financing conditions remain tight in a longer outlook of uncertainty.
He said South Africa faced a number of challenges in the global economy, including commodity export prices falling 27% last year with an expectation that they will fall a further 12% this year.
The rand depreciated 11% against the dollar in the past year while fuel price inflation was expected to be low, averaging below 1%.
He warned that domestic food price inflation remains unpredictable and high.
“The rise in inflation in 2022 generally resulted in higher inflation expectations across markets, businesses and households in 2023. Medium and longer-term market expectations for inflation remain elevated,” he said.
He said while the MPC expected South Africa to show improved fourth-quarter GDP data, a general weaker performance of the economy in the latter half of 2023 was in line with the Bank's forecast.
“The operation of ports and rail has become a serious constraint and, alongside electricity shortages, contributed to weak output growth and higher costs last year. These constraints are expected to persist, severely limiting potential growth of the economy,” he said.
He said GDP growth forecast for 2024/25 was revised downward since November from 0.8% to 0.6% with GDP growth estimated at 1.2% in 2024 and 1.3% in 2025.
Kganyago introduced David Fowkes, the newest MPC member.
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