The Reserve Bank will keep monetary policy tight for longer to tame persistent inflation, governor Lesetja Kganyago said.

The central bank’s monetary policy committee has raised the benchmark rate by a combined 475 basis points at its 10 past meetings with the aim of bringing inflation back to the 4.5% midpoint of its target range, where it prefers to anchor expectations.

“What is in no doubt is that policy is going to have to remain tight for a little bit longer than actually the market had been pricing,” Kganyago said in an interview. “And the reason has been that inflation has been more persistent than we had actually thought.”

Last month inflation slowed more than projected to a 13-month low of 6.3%. Still, inflation has been above the Reserve Bank’s target range for a year. The key repurchase rate stands at 8.25%, the highest level in 14 years.

The governor said it is too early to say whether the MPC will follow the US Federal Reserve and pause interest rate hikes at its meeting next month.

For how long it will be higher is a function of whether inflation declines to target, Kganyago said. “If inflation declines to target and is sustained at target and thus inflation expectations become anchored then you would say that it is time to recalibrate policy.”

Inflation is forecast to return within its target range this quarter or next, Kganyago said. “There are still risks to the inflation outlook and we have seen that inflation has been sticky, but we are confident that inflation is coming down.”

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Forward-rate agreements starting in a month — used to speculate on borrowing costs — show traders are pricing in a more than 63% chance of the MPC increasing the repurchase rate by 25 basis points on 20 July. Of the 16 economists polled in a Bloomberg survey earlier this month, 10 expect the central bank to pause and the rest forecast a quarter-point hike. — Francine Lacqua and Monique Vanek, with René Vollgraaff, (c) 2023 Bloomberg LP