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Wednesday, 27 March 2024 14:47

SARB keeps main interest rate unchanged, citing inflation risks.

By Lehlohonolo Lehana.

The South African Reserve Bank's (SARB's) Monetary Policy Committee (MPC) has decided to keep interest rates on hold – in line with market expectations.

The five-person committee, which will expand to six when Mampho Modise takes over as Deputy Governor next week, unanimously voted to keep the repo rate at 8.25%.

The decision follows the Consumer Price Index (CPI) inflation increase from 5.3% to 5.6% in February, which is near the top of the SARB’s 3% to 6% target range.

Governor Lesetja Kganyago said the return to the mid-point of 4.5% has been incredibly slow.

Core inflation has also increased to 5% in February, pushed higher by services inflation, particularly medical aid costs.

Thus, South Africa is joining the global trend of using services instead of goods, which is driving inflation.

The SARB expects inflation to return to the mid-point by mid-2025.

Regarding food prices, the governor said South Africa is at a difficult juncture.

With the current dry and hot weather conditions caused by the El Nino weather pattern, there are concerns that food price inflation may increase as the nation is in a critical growing period.

The rand is also trading weaker than the SARB expected, partially caused by the expectation that the interest rates will remain higher for longer in foreign markets.

This left inflation risks skewed to the upside.

That said, Kganyago said South Africa’s economic growth should improve this year as supply-side issues, including logistics woes and load shedding, ease.

The SARB sees GDP growing by 1.2% in 2024 and 1.6% in 2025, with the risks appearing balanced.

The Johannesburg Stock Exchange (JSE) was little changed on Wednesday morning, with the rand slightly firmer ahead of an interest rate announcement by the SA Reserve Bank.

Watch Live in the video below:

Video Courtesy of SARB.