South African Reserve Bank (SARB) Governor Lesetja Kganyago emphasized the importance of cautious decision-making regarding interest rates, highlighting the need to avoid future regret amid global uncertainty.
In an interview with CNBC Africa on Monday, Kganyago stated, “In an environment of uncertainty, it is very important for the central bank to move with caution and not add to the noise that you have in the data. We should not be creating uncertainty by making moves that we would later regret.”
This caution follows the central bank’s decision last month to reduce the key interest rate by 25 basis points, bringing it to 7.75%. While some analysts advocated for a more substantial cut, the SARB proceeded conservatively, despite inflation cooling to a lower-than-expected 2.8% in October. Kganyago clarified that the monetary policy committee (MPC) did not base its decisions on October’s data, saying, “You do not make policy on the past. You make policy on the future.”
Economists expect inflation to rise to 3.1% in November, driven by higher fuel prices and a weakening currency, with official figures due on Wednesday. The rand, a key emerging market currency, has depreciated by nearly 3% against the dollar since Donald Trump’s U.S. election victory, as investors anticipate smaller-than-expected rate cuts from the Federal Reserve, potentially strengthening the U.S. dollar and exacerbating import costs for South Africa.
“There are so many moving parts, and we are not clear about what is going to happen to the global economy as a result of changes in policies that we are not even aware of,” Kganyago said, referencing the unpredictable nature of international economic policies.
Last month’s rate cut was the second in the MPC’s easing cycle, which began in September. Nevertheless, Kganyago acknowledged that the SARB’s policy remains restrictive, with interest rates standing 4.95 percentage points above inflation, offering limited relief.
“Without a doubt, monetary policy is still in restrictive territory, by whichever measure you use,” Kganyago admitted. “It is exactly that which had provided us with the ability to reduce the policy rate and provide support.”
Looking ahead, the SARB governor reiterated his call for a lower inflation target, although he did not specify when the ongoing review of the target would be finalized. The central bank has anchored inflation within a 3% to 6% band since 2000, a range Kganyago believes is too high relative to South Africa’s peers, diminishing the nation’s competitiveness.
“The median for emerging markets is around 3%, and for developed countries, it’s at 2%. Inflation at levels above those of our peers, I’m afraid, does not begin to define price stability,” Kganyago stated.
The review of South Africa’s inflation target is expected to conclude soon, potentially lowering the benchmark to improve economic stability and competitiveness.
