Johannesburg - South Africa might be close to the end of interest rate hiking, conditional on the absence of risks to inflation materialising in the near future, the deputy governor of the SA Reserve Bank, Daniel Mminele, told an investor conference yesterday.
However, Mminele dashed any hopes of a rate cut, saying the bar to that was high.
He said the Reserve Bank’s monetary policy committee (MPC) said recent developments supported a lowering of the bank’s projected trajectory for headline and core inflation.
Inflation could surprise on the downside if the recent upward momentum in the rand’s exchange rate was sustained or if increased rainfall triggered a drop in grain prices, he said.
The rand firmed 19 percent since its record low against the dollar at about R16.87 against the dollar in January.
And the Crops Estimates Committee said yesterday that South Africa would probably harvest 7.5 million tons of maize this year, up 3.3 percent from the previous estimate as yields looked better for both white and yellow maize.
Lower peak
Mminele said headline inflation was expected to return to within the target range earlier than expected, and with a lower peak in the fourth quarter of this year, while the core measure is no longer seen breaching the 6 percent limit. “At this stage, the MPC views the risks to the most recent forecast to be more or less balanced. It has, therefore, indicated that in the light of the new forecast, we may be close to the end of the tightening cycle.”
However, such “guidance” remained conditional on the absence of risks to inflation in the near future, Mminele said.
“Indeed, there is no guarantee that the causes of the reduced risks to the inflation outlook will persist in coming quarters, and the MPC has been careful to convey that some of the factors which have had a favourable impact on the inflation outlook could reverse very quickly, in which case the view that we are close to the end of the tightening cycle would need to be re-assessed.”
Mminele said: “The MPC has also indicated that the bar to interest cuts is high.”
The Reserve Bank kept interest rates unchanged at 7 percent for a third consecutive time last week, and hinted at end of the tightening cycle.
The Reserve Bank said prices should rise by an average 6.4 percent this year, down from an earlier forecast of 6.6 percent. South Africa’s headline consumer inflation now stands at 5.9 percent.
The Reserve Bank has hiked the benchmark repo rate by a cumulative 200 basis points since the start of 2014 to rein in inflation. Mminele said the Reserve Bank remained committed to achieving its mandate of price stability, but it acted in a flexible manner, taking into account the real cycle of the domestic economy and the way in which it affected the price formation process.
BUSINESS REPORT