Reserve Bank decides to keep repo rate unchanged at 8.25%

The Reserve Bank's monetary policy committee has maintained the repo rate at 8.25%. Four members preferred an unchanged stance, and two preferred a reduction of 25 basis points.

In his Thursday address, Governor Lesetja Kganyago cautioned that the battle against inflation is not yet won.

He noted that South Africa's inflation outlook had improved, with the bank expecting inflation to return to the midpoint of its 3%-6% target band in the last quarter of 2024, compared to the previous forecast of reaching below 4.5% by the second quarter of 2025.

The projected headline consumer price inflation for 2024 is now 4.9%, down from the 5.1% forecast at the previous meeting.

“Over the next few quarters, headline inflation is expected to dip below the 4.5% midpoint, mainly because of fuel and food prices. This outlook is supported by the stronger rand. The implied starting point for our forecast is now at R18.35 to the dollar.

"Over the medium term, we continue to see inflation stabilising at 4.5%, with core inflation remaining close to this midpoint objective throughout,” he said.

Despite the improved forecast, Kganyago stressed that the balance of risks remains tilted to the upside, leading to the decision to refrain from a rate cut.

The last adjustment to the repo rate occurred in May 2023, while borrowing costs have increased by 475 basis points since November 2021, straining indebted South Africans and the economy.

Kganyago pointed to several risks, including persistently high global interest rates, particularly in the US, which could remain elevated longer than anticipated and affect the currency outlook.

On the domestic front, Kganyago remarked that South Africa's economic performance in the first half of the year was disappointing, with the economy contracting by 0.1% in the first quarter.

“Recent data, including last week’s mining and manufacturing numbers, have caused us to trim our second-quarter growth estimate modestly, to 0.6%,” he said.

The bank has revised its GDP growth forecast for 2024 from 1.2% down to 1.1%.