The Reserve Bank decided to halt interest rate hikes on Thursday for the first time since November 2021, but governor Lesetja Kganyago was quick to add that the pause did not mean an end to the hiking cycle.
The Bank’s monetary policy committee (MPC) kept rates at 8.25% as inflation forecasts came in lower than previous ones and economic conditions improved.
Kganyago said future rate decisions would continue to depend on economic data and risks to the inflation outlook.
“Have interest rates peaked? The answer is a resounding ‘no’,” said Kganyago at a press conference. “Is this the end of the hiking cycle? No, it is not. It depends on the data and risks, that is what it boils down to.”
Consumer inflation fell within the Reserve Bank’s target range of between 3% and 6% for the first time in 14 months in June, data showed on Wednesday.
The rand fell in the aftermath of the rate decision.
The Reserve Bank is now projecting inflation will average 6% in 2023 compared to a 6.2% forecast in May. The Bank expects inflation to fall back to the midpoint of the target range sustainably only by the third quarter of 2025.
GDP growth is forecast at 0.4% in 2023, revised up slightly from 0.3%.
Uncertain outlook
“South Africa’s economic conditions appear to have improved,” the bank said in its MPC statement, while cautioning that the longer-term outlook remained uncertain amid ongoing power cuts, logistical bottlenecks and as sustained food price pressures pose a risk to inflation.
Jason Tuvey, deputy chief emerging markets economist at Capital Economics, said in a note that rate cuts were likely to materialise only early next year.
“The split vote suggests that inflation concerns continue to linger and it is likely to take some time before a majority on the MPC are in favour of rate cuts,” Tuvey said.
Three members of the MPC preferred to keep rates on hold and two preferred a 25 basis points hike.
Deputy governor Kuben Naidoo said a rate cut was not discussed at the July meeting. — Nellie Peyton, Tannur Anders and Kopano Gumbi, with Anait Miridzhanian, Promit Mukherjee and Rachel Savage, (c) 2023 Reuters