The South African Reserve Bank Monetary Policy Committee (MPC) has once again kept the repo rate unchanged at 8.25% while the prime lending rate also stays at 11.75%.
This was announced by Governor Lesetja Kganyago during a media briefing in Pretoria, adding that it was a unanimous decision by members of the MPC.
The repo rate has remained the same since May last year, and it’s the fifth consecutive time that the MPC has kept it in the same position.
Kganyago said in assessing the forecast, the MPC noted a range of risks, including inflation.
“Since the start of the year, we have seen persistent global inflation pressures.
“Headline inflation rates are generally lower than they were a year ago, but underlying inflation is still elevated.
Goods inflation has declined significantly, as supply shocks wear off, but there is evidence of stronger inflation in services, across a range of economies,” said Kganyago.
The Governor highlighted that the economy performed worse than expected in the fourth quarter of last year, expanding just 0.1%, and that growth for 2023 was 0.6%.
He attributed this to loadshedding which he said was worse than in previous years, constraints on output at port and rail terminals.
“Our forecasts indicate a modest growth acceleration from this year, as these supply side constraints relax.
“In particular, we expect the loadshedding burden will ease somewhat.
“While we estimate electricity shortages took 1.5 percentage points off GDP last year, we think this will moderate to 0.6 percentage points this year and 0.2 percentage points in 2025,” explained Kganyago.
Kganyago expressed concern that the country is at a difficult juncture, regarding food prices.
“Last year, food inflation hit its highest levels since 2008. Food inflation has now slowed. But this is a critical time in the growing season, and it has been unusually hot and dry, which may cause food inflation to pick up again,” warned Kganyago.
He said contrary to their last MPC meeting, the rand has been trading than expected especially considering the exchange rate.
“This is partly due to interest rates in the major advanced economies staying high for longer.
The currency is also under pressure from weakening terms of trade.
Furthermore, investors see significant near-term domestic uncertainty.
We view the exchange rate as undervalued,” bemoaned Kganyago.
As a result of the rand substandard performance, the Governor said the policy stance is considered restrictive, consistent with the inflation outlook and the need to address elevated inflation expectations.
In addition, Kganyago said extra measures that would improve economic conditions.
“These include achieving a prudent public debt level, improving the functioning of network industries, lowering administered price inflation, and keeping real wage growth in line with productivity gains,” said Kganyago.
The next statement of the Monetary Policy Committee will be released on 30 May 2024.
