Reserve Bank warns rate hike cycle is not over amid ‘risks’ in the economy

South Africa’s cycle of interest-rate increases has not yet run its course, says Reserve Bank Deputy Governor Daniel Mminele.

“The risks in the policy environment remain too numerous to be able to say definitively that the hiking cycle is over,” Mminele said yesterday.

That’s even as “the recent improvements to the inflation outlook are a positive development”.

While price growth slowed to 6% in July, the lowest rate this year, the rand slumped and inflation expectations, as measured by the five-year break-even rate, surged to the highest in more than five weeks on Thursday following reports that a special police unit has summoned Finance Minister Pravin Gordhan to its office.

The Monetary Policy Committee left its benchmark repurchase rate unchanged at 7% at its last two meetings and said in July it pressed the “pause” button on the increase cycle.

The MPC has raised borrowing costs by 125 basis points since July last year as it sought to steer inflation back into its 3% to 6% target range. Much of the current increase cycle has been about preventing second-round price effects, Mminele said. The central bank forecasts inflation will only return to the target band by the middle of next year.

“The currency remains an important risk factor as recent trends can quickly reverse should global risk perceptions change,” Mminele said.

South Africa has “too much inflation” to lower rates, Governor Lesetja Kganyago said on Wednesday. The economy will probably not grow at all this year, according to the central bank. – Bloomberg