Home Business and Technology SA Reserve Bank remains steadfast on CPI target midpoint

SA Reserve Bank remains steadfast on CPI target midpoint

SA Reserve Bank

The South African Reserve Bank is steadfast that it wants to see inflation expectations anchored at the 4.5% midpoint of its target range, governor Lesetja Kganyago has said.

While the central bank unexpectedly raised its key rate to 6.75% in November, its current policy stance remains accommodative with the benchmark rate still below neutral, Kganyago said in an interview on Thursday with Bloomberg Television in Washington.

Consumer inflation was below the target midpoint for the second straight month in February and will stay within the 3% to 6% range until at least of the end of 2021, according to central bank forecasts. The Monetary Policy Committee sees inflation averaging 5.3% next year and 4.7% in 2021.

The MPC welcomes the fact that inflation expectations have declined, but it wants to see more evidence of lower future prices, Kganyago said.

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“For you to have lower interest rates, you have got to have lower inflation, not just yesterday’s inflation but lower inflation on a forward-looking basis,” he said.

The comments may knock expectations for a cut in interest rates this year, particularly given a recent surge in oil prices that had already pushed gasoline costs to a near-record high. The central bank is under pressure to ease policy as economic growth remains anemic.

The last time any panel member voted to ease borrowing costs was in March 2018, even as the economy went through a recession last year and will only reach 2% growth in two years’ time, according to central bank forecasts.

Forward-rate agreements starting in eight months, used to speculate on borrowing costs over the period, are pricing in a less than 50% chance of a 25 basis-point cut this year, down from about 70% last week.

Kganyago said the one thing that could boost economic growth is restoring business confidence. While sentiment surged after President Cyril Ramaphosa came to power and replaced Jacob Zuma following almost nine scandal-ridden years, an index tracking this fell back again and was at a seven-month low of 91.8 in March.

Restoring confidence will “entail government taking certain concrete steps on the business front,” Kganyago said. Ramaphosa’s administration has taken important policy decisions and “we need the government to implement those with resolve,” he said.

Source – News24

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