South African Reserve Bank Governor Lesetja Kganyago says there will be no interest-rate cuts until inflation is brought under control, maintaining a steadfast stance despite suggestions for immediate action ahead of national elections.
Kganyago, speaking during an interview with Bloomberg in Sao Paulo, pointed out that current interest rates reflect the prevailing inflationary conditions, stressing the need to curb inflation before contemplating any alterations in monetary policy.
“Rates are where they are because inflation is what it is,” Kganyago said on the sidelines of a Group of 20 meeting of finance chiefs and central bank governors.
“The task of taming inflation is not yet done. Until that is done, I don’t see why there should be a change in the monetary stance.”
The central bank has maintained its benchmark interest rate at 8.25% since May 2021, the highest in nearly 15 years. Kganyago's remarks reiterated his consistent position that it's premature to consider easing monetary policy.
The central bank prefers to anchor inflation expectations at the 4.5% midpoint of its target range. Inflation has been above that level since May 2021 and is only expected to settle there next year.
“The inflation outlook is uncertain, it’s been volatile. Until inflation stabilizes where we want it, at 4.5%, and is sustained there, we don’t see reason why we should change our monetary policy stance,” he said.
Kganyago highlighted various factors contributing to inflation uncertainty, including food prices, geopolitical tensions affecting global supply chains, and energy market fluctuations. He also affirmed the central bank's independence, dismissing attempts to influence policy, particularly amidst impending elections.
The monetary policy committee is scheduled to convene for one more rate decision before the elections at the end of March.
Despite the noise during an election year, Herschel Jawitz, CEO of Jawitz Properties, said that adopting a wait-and-see approach when making big decisions, such as selling or purchasing a property, may be a mistake.
“It’s true that there is uncertainty at the moment, but if you take the time to look, there are opportunities for sellers, buyers and investors. We tend to see only one part of the picture – one needs to take everything into account,” he said.
He noted that inflation is now within the South African Reserve Bank’s target range of 3% to 6%, which should support interest rate cuts.
Even a modest 1% interest rate reduction could translate to a R1,000 monthly decrease in repayments for a R1 million home loan. Furthermore, expectations of easing food inflation offer additional relief on disposable incomes.
Despite a sluggish economy and subdued property price growth, the market favours buyers, spurred by competitive bank lending practices offering below-prime rates.
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