The South African Reserve Bank’s monetary policy committee (MPC) has decided to keep the repo rate at 8.5% for the seventh time in a row, despite a slight improvement in the inflation rate.
Reserve Bank Governor Lesetja Kganyago announced the decision following the July MPC meeting in Pretoria.
Four members voted to keep the rate unchanged, while two preferred to cut it by 25 basis points.
“In discussing the stance, MPC members agreed that restrictive policy remains appropriate to stabilise inflation at 4.5%. The committee assessed that an unchanged stance remained appropriate, given the inflation risks.
“Some members, however, were of the view that the inflation outlook had improved enough to reduce the degree of restrictiveness,” Kganyago said on Thursday.
This means that the current prime lending rate remains at 11.75%, based on a repo rate of 8.25%.
However, Kganyago said the Bank remains concerned about administered prices.
“We have had to mark up electricity inflation for this forecast round, even as other categories shifted lower,” he said, adding that services price inflation also remains uncomfortably above the mid-point.
He spoke at length about inflation. The most recent headline print for May was 5.2%, unchanged from April and still in the top half of the 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.”
Meanwhile, Kganyago predicted that in the next few quarters, the headline is expected to drop below the 4.5% midpoint, mainly due to 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.”
The Governor said the forecast continues to see rates easing into more “neutral territory” by next year.
“As before, the rate path from the Quarterly Projection Model remains a broad policy guide, changing from meeting to meeting,” he said.
He said the decisions of the MPC will continue to be data-dependent and “sensitive” to the balance of risks to the outlook.
“We are committed to stabilising inflation at the mid-point of the target band. Achieving this outcome will improve the economic outlook and reduce borrowing costs.”
Kganyago stressed the committee’s views on additional measures that would improve economic conditions.
He mentioned the need to achieve a reasonable public debt level, enhance the operation of network industries, reduce controlled price inflation, and align real wage growth with productivity gains.
The next meeting of the MPC will be on 19 September 2024. – SAnews.gov.za
