South Africa holds rate but says hikes may not be over
2023.07.20 12:10
© Reuters. FILE PHOTO: The logo of South Africa’s central reserve bank is seen during the delivery of a keynote address by South Africa’s central bank governor, Lesetja Kganyago, at the University of the Witwatersrand in Johannesburg, South Africa, November 1, 2022.
By Kopano Gumbi, Nellie Peyton and Tannur Anders
PRETORIA (Reuters) -South Africa’s central bank decided to halt interest rate hikes on Thursday for the first time since November 2021, but Governor Lesetja Kganyago was quick to add that the pause did not mean an end to the hiking cycle.
The South African Reserve Bank’s (SARB) monetary policy committee (MPC) kept rates at 8.25% as inflation forecasts came in lower than previous ones and economic conditions improved.
Kganyago said future rate decisions would continue to depend on economic data and risks to the inflation outlook.
“Have interest rates peaked? The answer is a resounding no,” said Kganyago at a press conference. “Is this the end of the hiking cycle? No, it is not. It depends on the data and risks, that is what it boils down to.”
South Africa’s consumer inflation fell within the SARB’s target range of between 3% and 6% for the first time in 14 months in June, data showed on Wednesday.
The rand fell in the aftermath of the rate decision.
The SARB is now projecting inflation will average 6.0% in 2023 compared with a 6.2% forecast in May. The bank expects inflation to fall back to the midpoint of the target range sustainably only by the third quarter of 2025.
GDP growth is forecast at 0.4% in 2023, revised up slightly from 0.3%.
“South Africa’s economic conditions appear to have improved,” the bank said in its MPC statement, while cautioning that the longer-term outlook remained uncertain amid ongoing power cuts, logistical bottlenecks and as sustained food price pressures pose a risk to inflation.
Jason Tuvey, deputy chief emerging markets economist at Capital Economics, said in a note that rate cuts were likely to materialise only early next year.
“The split vote suggests that inflation concerns continue to linger and it is likely to take some time before a majority on the MPC are in favour of rate cuts,” Tuvey said.
Three members of the MPC preferred to keep rates on hold and two preferred a 25 basis points hike.
Deputy governor Kuben Naidoo said a rate cut was not discussed at the July meeting.
