South African central bank opts for another ‘hawkish hold’

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. REUTERS/Siphiwe Sibeko/File Photo

For the third consecutive meeting, South Africa’s central bank maintained its hawkish stance on Thursday, maintaining its primary lending rate at current levels and highlighting the negative impact of logistics constraints on the country’s economic prospects.

The unanimous decision to maintain the repo rate at 8.25% (ZAREPO=ECI) was consistent with every expectation in the past week’s Reuters survey of economists.

The most industrialized country in Africa has only managed slow economic development over the last ten years due to ongoing power outages at state utility Eskom and issues at port and freight rail operator Transnet, which have curtailed commercial activity in industries ranging from mining to agriculture.

During a press conference, the Governor of the South African Reserve Bank (SARB), Lesetja Kganyago, stated that “the operation of ports and rail… has become a serious constraint.”

October saw a substantial increase in inflation from 5.4% year over year in September to 5.9% year over year in October, almost reaching the top limit of the central bank’s 3%–6% target range.

“The increase in inflation is not desirable,” Kganyago stated, alluding to the October statistics.

He said the bank still anticipated inflation to drop within its target range by 2025, even with the monthly increase.

He would not say when interest rate reductions should be expected. Although many experts predict the first rate decrease will occur in early 2024, others have cautioned that the SARB may postpone its easing cycle after that.

Jason Tuvey, deputy chief emerging markets economist at Capital Economics, said, “the SARB is clearly in no rush to join the emerging market rate-cutting club.”

Elize Kruger, an independent economist based in South Africa, speculated that a decrease would be coming soon as the SARB may have reached the end of its cycle of rate increases.

Starting in November 2021, the SARB raised rates ten times before the most recent three “hold” decisions.


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