South Africa’s Central Bank sticks with hawkish tone on inflation
South African Reserve Bank Governor Lesetja Kganyago acknowledged that inflation has eased, but stressed it was premature to declare victory in the battle to contain price pressures.
“We have got to be seeing that consecutively, inflation is sustainably closer to the 4.5% that we aim for,” he said Thursday during a television interview with Newzroom Afrika. “Then we would know that we have actually conquered this monster called inflation.”
The South African central bank held its benchmark interest rate unchanged at 8.25% on Sept. 21, while stressing that it remained on alert against inflation.
“It is closer to where we would like to see it,” he said on Thursday. “Inflation has declined. But the job is not yet done.”
The central bank prefers to anchor inflation expectations close to the midpoint of its target range of 3% to 6%. Annual inflation in August quickened for the first time in five months to 4.8% from 4.7% in July, signaling that price pressures are still lingering.
Data Dependent
“We are guided by data. We will look at the data that’s come since our previous meeting,” Kganyago said when asked if the monetary policy committee will hold rates again in November.
He noted the risks to the inflation outlook include oil and food prices, as well as the value of the rand on foreign-exchange markets, which has weakened more than 10% against the dollar so far this year as the US central bank raised rates.
“Global financial conditions remain tight and with global financial conditions being tight, capital flows to where it can get the best returns,” he said, adding that the rate differential advantage enjoyed by emerging markets has narrowed as monetary policy in advanced economies was tightened.
In forecasts updated last month, the central bank expects inflation to average 5.9% this year down from a prior estimate of 6%, slowing to an average of 5.1% in 2024. It sees the South African economy growing 0.7% this year, up from a previous forecast of 0.4%, as ongoing power cuts and logistical constraints continue to hamper activity.
“Inflation is eating the income of South Africans the central bank has to be vigilant to that,” Kganyago said. “We do not take pleasure at South Africans being in pain because interest rates are elevated.”
South Africa’s gloomy economic outlook is also being darkened by the government’s poor public finances. Finance Minister Enoch Godongwana is expected to warn of a widening budget deficit and declining revenues when he presents a review of South Africa’s fiscal position on Nov. 1.
Independence Tested
At a later event in Johannesburg, Kganyago defended the reserve bank’s independence, noting that its mandate for stable prices is enshrined in the South African constitution.
During his current tenure, which ends in November 2024, the central bank has faced calls to soften its policy stance from members of the ruling African National Congress, which opinion polls show could lose its majority during next year’s election.
The governor said his message to anyone calling for the central bank to tack a different tack was simple: “Go change the constitution.”
He was also asked if he was interested in staying in the job for a third term. His answer left everything on the table.
“I am a servant of my people,” he said, adding he would “consider it if it is raised with me.”
