By The Monitory Policy Committee (MPC) of the South African Reserve Bank (SARB) has kept the repo rate unchanged at 8.25% citing global and domestic economic factors influencing the decision.
Global inflation is loosening its grip on some economies and continues to ease as the globe enters the second half of the year. According to Lesetja Kganyago, the Governor of the South African Reserve Bank, the mounting price increases that were experienced by the world in 2022 and 2023 have receded.
Though inflation is on a downward trend, Kganyago says the battle on inflation is not yet over and global interest rates remain elevated.
South Africa is one of the countries that experienced a contraction in its economy in the first half of 2024, to which Lesetja Kganyago says it was disappointing as the economy contracted by 0.1%.
“Recent data, including last week’s mining and manufacturing numbers, have caused us to trim our second quarter growth estimate modestly, to 0.6%. Over the medium term, we expect somewhat faster growth, supported by a more reliable electricity supply and improving logistics, among other factors. Our revised growth projections nonetheless remain below longer-run historical averages, of about 2%. The risks to this forecast are assessed as broadly balanced, with ample scope for structural reforms to lift growth further over the medium term.
On the inflation front, the most recent headline print, for May, was 5.2%, unchanged from April and still in the top half of our target range. The outlook, however, has improved somewhat. Headline consumer price inflation for this year is now projected at 4.9%, compared to 5.1% at the previous meeting.
Over the next few quarters, headline is expected to dip below the 4.5% midpoint, mainly because of fuel and food prices. This outlook is supported by the stronger rand. The implied starting point for our forecast is now at R18.35 to the US dollar. Over the medium term, we continue to see inflation stabilising at 4.5%, with core inflation remaining close to this midpoint objective throughout,” said the Governor.
Given the above, Governor Lesetja Kganyago said the MPC decided to keep the repo rate unchanged at 8.25%, he said four of the members preferred an unchanged stance while two preferred a reduction of 25 basis points.
