South Africa’s central bank kept its benchmark interest rate unchanged, while signaling that borrowing costs are likely to stay higher for longer because of persistent inflation risks.
(Bloomberg) — South Africa’s central bank kept its benchmark interest rate unchanged, while signaling that borrowing costs are likely to stay higher for longer because of persistent inflation risks.
The monetary policy committee maintained the rate at a 14-year high of 8.25% for a second consecutive meeting, Governor Lesetja Kganyago said at a briefing north of Johannesburg on Thursday. That matched the median estimate of 26 economists in a Bloomberg survey.
“The job of tackling inflation is not yet done,” Kganyago said. “Risks remain. Should we see them materialize, we stand ready to act.”
Read More: South African Reserve Bank Interest Rate Statement Side-by-Side
The inaction on rates was backed by three of the MPC’s members and the other two preferred a 25 basis-point increase. Prior to holding borrowing costs in July, the central bank raised them at 10 previous meetings, bringing the cumulative increase to 475 basis points since November 2021.
The rand remained weaker and was down 0.6% to 18.9549 per dollar by 3:30 p.m. in Johannesburg. Yields on benchmark government debt rose seven basis points from Wednesday’s close to 12.13%.
Forward-rate agreements, used to speculate on borrowing costs in 12 months time, were pricing in an 84% chance of a 25 basis-point interest rate cut after the rate decision. That compares with expectations of a 50 basis-point rate cut that was fully priced in at the start of September.
The bank prefers to anchor inflation expectations close to the midpoint of its 3% to 6% target range. Annual inflation in August quickened for the first time in five months to 4.8% from 4.7% in July, signaling that price pressures are still lingering.
The decision may offer some relief to the moribund economy that the central bank now expects to grow 0.7% this year — marginally higher than its previous forecast of 0.4% — and to households that are battling to make ends meet because of high interest rates and inflation.
“There is no virtue in high inflation,” Kganyago said. “High inflation begets high interest rates and the cries of South Africans over the years has been that inflation is eroding our incomes.”
Retail sales fell for an eighth straight month in July, dropping 1.8% from a year earlier and household consumption spending that accounts for about two-thirds of gross domestic product fell 0.3% in the second quarter, its biggest decline since the three months through September 2021.
–With assistance from Simbarashe Gumbo, Colleen Goko and Paul Richardson.
(Updates with details throughout.)
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