SA Reserve Bank might freeze interest rates as Governor Kganyago takes an accommodative stance
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INTEREST rates in South Africa could remain flat at historic lows for the remainder of the year as South African Reserve Bank (SARB) Governor Lesetja Kganyago takes an accommodative stance towards monetary policy to help reboot the economy despite the pressure to begin its rising cycle in November due to rising inflation.
Data from Statistics South Africa (StatsSA) showed that the annual headline consumer price inflation (CPI) edged slightly higher to 5 percent in September, up from 4.9 percent in August, driven up by global factors.
This represented the fifth consecutive month with annual CPI above the 4.5 percent midpoint of the SARB’s monetary policy target range of 3 to 6 percent.
On a monthly basis, inflation slowed from 0.4 percent in August to 0.2 percent in September, driven by higher fuel prices, rising food and non-alcoholic beverages prices, and housing and utilities.
House prices have also risen by 4.2 percent year-on-year from October last year to September this year.
The SARB uses interest rates to influence the level of inflation, and sets the inflation target which acts as a benchmark against which price stability is measured.
In September, the SARB’s Monetary Policy Committee (MPC) unanimously voted to leave interest rates unchanged for the seventh consecutive time at a record low of 3.5 percent where they have been since July 2020.
However, Kganyago warned that the start of policy normalisation was nearing, projecting a 25 basis-point hike in interest rates to 3.75 percent in the final quarter of the year on the upside surprise to inflation.
Kganyago, however, said the monetary policy would remain highly accommodative in a bid to keep financial conditions supportive of credit demand as the economy continues to recover.