SA central bank holds key rate, citing inflation risks
PRETORIA — South Africa’s central bank kept its key interest rate unchanged at 8.25 per cent on Wednesday, saying that on balance risks to the inflation outlook were skewed to the upside.
It was the fifth meeting in a row that the bank has maintained its repo rate at the same level. All economists polled by Reuters had forecast that the rate would be left unchanged.
The decision to maintain the repo rate at its current level was unanimous.
Inflation rose to 5.6 per cent year on year in February from 5.3 per cent in January moving closer to the top of the central bank’s 3 per cent-6 per cent target range.
The South African Reserve Bank said in a statement accompanying its decision that headline inflation was now seen reaching the midpoint of its target range only at the end of 2025, later than previously forecast.
“As a result, the policy rate in our baseline forecast also starts normalising later,” the statement said.
South African Reserve Bank (SARB) Governor Lesetja Kganyago has said the bank wants to see inflation sustainably around the midpoint of its target range before considering rate cuts.
The repo rate has been at 8.25 per cent since May last year and is at its highest since 2009 as the SARB tries to keep a lid on price pressures.
A big contributor to the pickup in inflation in February was medical insurance premiums. Analysts warn wages, education and rental costs could be sources of further inflationary pressures in the coming months.
Another concern for the SARB will be inflation expectations, which remain above its average inflation forecasts for 2024 and 2025.
Economists expect the SARB to wait until the third quarter of the year before cutting interest rates, a Reuters poll published last week showed.
The poll found South Africa’s repo rate was expected to fall to 7.50 per cent in November, loosely translating to three consecutive cuts in meetings from July to year-end.