By Phenyo Selinda
Pretoria – The South African Reserve Bank (SARB) Governor, Lesetja Kganyago, has announced that the Monetary Policy Committee (MPC) has decided to keep the repo rate steady at 8.5%. This marks the seventh consecutive meeting where the rate remains unchanged, despite a slight improvement in the inflation rate.
Decision and Rationale
Following the July MPC meeting held in Pretoria, Kganyago revealed that four members voted to maintain the current rate, while two members preferred a 25 basis point reduction. Kganyago stated, “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.”
The decision means the current prime lending rate remains at 11.75%, based on the repo rate of 8.5%. Despite this, the Bank remains vigilant about administered prices. Kganyago noted, “We have had to mark up electricity inflation for this forecast round, even as other categories shifted lower. Services price inflation also remains uncomfortably above the mid-point.”
Inflation Overview
Kganyago provided an in-depth analysis of the current inflation scenario. The headline inflation rate for May stood at 5.2%, unchanged from April, remaining in the upper half of the target range. However, the outlook has shown signs of improvement. “Headline consumer price inflation for this year is now projected at 4.9%, compared to 5.1% at the previous meeting,” Kganyago explained.
He further predicted that the headline inflation rate is expected to drop below the 4.5% midpoint in the next few quarters, primarily due to lower fuel and food prices. This positive outlook is bolstered by a stronger rand, with the forecast starting point 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,” Kganyago added.
Future Projections and Economic Measures
The Governor indicated that the forecast suggests rates might ease 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 emphasised that MPC decisions will remain 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 also highlighted the committee’s views on additional measures to enhance economic conditions. These include achieving a reasonable public debt level, improving the operation of network industries, reducing controlled price inflation, and aligning real wage growth with productivity gains.
Next MPC Meeting
The next meeting of the MPC is scheduled for 19 September 2024.
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