South African Reserve Bank Governor, Lesetja Kganyago, today announced that the Monetary Policy Committee (MPC) decided to keep the repurchase rate (repo rate) for the country unchanged.
This means that the repo rate will remain at 8.25%, while the prime lending rate also stays at 11.75%.
The governor said, “Achieving permanently lower inflation and interest rates requires inflation expectations to be closely anchored to the mid-point of the target band.”
Kganyago said that at the start of the new year, economic conditions remained mixed and the outlook uncertain.
The governor said during his address, “While headline inflation continues to ease in much of the world, core inflation remains sticky and high. Both advanced and emerging economies are likely to see modest economic growth this year, despite better-than-expected outcomes in 2023. In most countries, reaching inflation targets, reducing fiscal deficits and containing or lowering debt levels will stay as key policy priorities. Financing conditions are expected to remain tight.”
“The longer-term economic outlook is also uncertain, as geo-political tensions and climate change threaten supply chains, output and prices. This uncertainty, alongside high-interest rates and debt, will dampen investor appetite and capital flows, resulting in volatile financial markets and asset prices. Taking these and other factors into account, the SARB’s forecast expects relatively weak global growth of 2.6% in 2024,” he further added.
The governor said that the operation of ports and rail has become a serious constraint, and, alongside electricity shortages, contributed to weak output growth and higher costs last year.
“These constraints are expected to persist, severely limiting potential growth of the economy. While we expect electricity supply to increase gradually over the longer-term, its contribution to short and medium-term growth has not been revised after the upward adjustment made at the time of the November meeting,” Kganyago said.
GDP and inflation
On GDP growth, the governor said, “For 2023 as a whole, GDP growth is revised down slightly to 0.6% from the November figure of 0.8%. Our GDP growth forecast for 2024 and 2025 is unchanged from the previous meeting, at 1.2% and 1.3%, respectively. At present, we assess the risks to the medium-term domestic growth outlook to be balanced.”
For 2023 as a whole, GDP growth is revised down slightly to 0.6% from the November figure of 0.8%. Our GDP growth forecast for 2024 and 2025 is unchanged from the previous meeting, at 1.2% and 1.3%, respectively. At present, we assess the risks to the medium-term domestic growth… pic.twitter.com/NdEhWWkwKy
— SA Reserve Bank (@SAReserveBank) January 25, 2024
The governor also said, “Sticky inflation in G3 economies implies that their average policy rates will remain elevated, at about 4.3% in 2024 compared to the 1.1% average rate seen in 2022. These tighter global financial conditions raise the risk profile of economies needing foreign capital. South Africa’s long-term cost of borrowing is expected to remain high. Despite moderating inflation, long-term bond yields currently trade around 12%.”
Core inflation was 4.9% in 2023. The core inflation forecast for 2024 and 2025 is little changed at 4.6%, and 4.5% in 2026. pic.twitter.com/oAtT7W9nEw
— SA Reserve Bank (@SAReserveBank) January 25, 2024
Headline inflation was 6.0% in 2023. With few significant changes to the forecasts for underlying components, headline inflation for 2024 is expected to ease to 5.0%, to 4.6% in 2025, and to 4.5% in 2026. pic.twitter.com/24F1fGfKSZ
— SA Reserve Bank (@SAReserveBank) January 25, 2024
Ahead of the SARB’s decision, it was widely expected that the rate would remain unchanged.
Frank Blackmore, Lead economist at KPMG told Business Report that while inflation had seen a reduction, we could only see a reduction in interest rates later in the year.
Blackmore said, “Although inflation has seen a reduction from the highs of July in 2022 to the current level of 5.5% in November of last year (2023), we do expect that trend to continue further through 2024. The reality is, there is still a lot of inflation or cost pressure within the economy.”
This comes despite consumer prices dipping for the second month in a row in December 2023, but remaining at the upper limit of the target range.
Data from Statistics South Africa (StatsSA) released earlier in the week showed that the headline consumer price index (CPI) eased to 5.1% in December from 5.5% in November and 5.9% in October.
This was the lowest reading in four months, edging closer to the SARB’s preferred 4.5% midpoint of the 3-6% target range.
Watch the SARB governor make his announcement on the country’s interest rates below:
BUSINESS REPORT