South Africa’s central bank governor Lesetja Kganyago said on Tuesday that the bank would bring inflation back to its 3% target, defending last week’s rate hike as necessary to prevent second-round effects from the Middle East oil shock from becoming entrenched.
- The South African Reserve Bank raised its key repo rate by 25 basis points last Thursday, to 7%, with four out of six Monetary Policy Committee members backing the decision.
- South Africa’s inflation climbed to 4% in April from 3.1% in March, sitting at the upper end of the central bank’s target range.
- The SARB, which targets inflation at 3% with a 1-percentage-point tolerance band, raised its inflation forecasts to 4.4% and 3.7% for 2026 and 2027 respectively.
- Africa’s most industrialised economy is a net oil importer and has seen large price hikes on the back of the Iran war, which has pushed inflation higher, despite a modest government intervention on the fuel levy to cushion the full effect of the price increases.
- The governor said second-round effects from the oil shock -including spillovers to food prices from higher diesel and fertiliser costs – were developing and needed to be tackled. The bank is projecting core inflation of around 4% in the first half of next year.
- Kganyago warned that inflation expectations could quickly edge higher as price setters have a fresh memory of elevated inflation, adding that raising rates now was a move to counter that risk.
- “By changing rates, we hope to send a clear and credible signal that we will keep inflation under control,” Kganyago said in a speech to economists in Johannesburg, warning that the bank would not allow a price spiral to take hold at the expense of the most vulnerable.
- Kganyago firmly ruled out reverting to the old 3–6% inflation target band.
- The next inflation expectation survey will be released at the end of June.
Reporting by Kopano Gumbi; Editing by Sfundo Parakozov and Alex Richardson
SOURCE: Reuters