Monetary Policy Committee maintains interest rates amid falling inflation expectations

The South African Reserve Bank’s Monetary Policy Committee has kept the repo rate unchanged, making it the first pause in a stop-and-go cycle. The MPC announced its latest policy rate decision on Thursday following this week’s marathon meeting.

The decision to hold rates is in line with market expectations, with economists predicting a cautious tone from the central bank. Four of the six MPC members voted in favour of a hold, while the other two dissenting policymakers voted for a 25 basis point cut.

Reserve Bank Governor Lesetja Kganyago says it was a tough balancing act in the face of changing conditions.

“More positively, inflation expectations have fallen, with the latest survey showing longer-term expectations at record lows. We look forward to expectations declining further, as South Africans experience ongoing lower inflation and learn more about the new target. In turn, lower expectations will be important for getting inflation to settle at 3%,” says Kganyago.

The Governor noted that the bank is currently benefitting from low goods price inflation, supported by factors like the stronger rand. Goods inflation is at 3%, and core goods is at 1.2%. By contrast, services inflation is still over 4%.

“It is desirable to have services inflation moving closer to 3%, as low inflation becomes the new normal for South Africa. We assess the risks to the inflation outlook as balanced. Against this backdrop, the MPC decided to keep the policy rate unchanged, at 6.75%.”

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