Kganyago defends cautious stance amid rising oil prices and geopolitical risks

Reserve Bank Governor Lesetja Kganyago has signalled that interest rate cuts will be delayed on the back of intensifying global risks.

The South African Reserve Bank (SARB) left interest rates unchanged, citing concerns of higher inflation.

This as higher oil prices, which are expected to push headline inflation.

Kganyago said the bank’s cautious approach is justified as it has led to a lower CPI.

The Reserve Bank has been criticised by some economists for being too restrictive in its inflation policy setting.

Kganyago said the approach of the Monetary Policy Committee, which sets interest rates, has proven prudent, given global economic shocks that pose upside risks to inflation.

Before the Middle East war, headline inflation was contained at 3%, the ideal rate that the SARB wants to see.

But this is changing and the MPC sees inflation rising to 4% with fuel prices driving prices.

On Thursday afternoon, the price for Brent crude oil was hovering around 107 dollars per barrel.

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Kganyago said the MPC has looked at two scenarios when deciding on rates -one, the war continues for a shorter period, and the second, it goes on for longer, both of which, he said, are more adverse than the MPC’s baseline.

He said the price shocks are external and there's much that monetary policy can do to change the coming increases. Adding that there are too many moving parts and things will have to be evaluated on a meeting-by-meeting basis. This means interest rates will remain unchanged for longer.

Kganyago said that while there have been few buffers to cushion consumers from price shocks, this is changing.

He says prudent macro-economic policy, including economic reforms, a primary budget surplus and lower debt levels will provide support.