The South African Reserve Bank’s Monetary Policy Committee (MPC) has kept the repo rate unchanged at 7%.
This was announced by Reserve Bank Governor, Lesetja Kganyago on Thursday.
The prime lending rate will also stay steady at 10.50%.
“Four members preferred a hold, while two favoured an increase of 25 basis points.
“The committee agreed that the outlook is uncertain, and with the rate increase at our previous meeting, the policy stance is appropriate for now, with rates somewhat restrictive,” Kganyago said.
Turning to growth, the Governor said that while first quarter growth stood “stronger than expected”, the MPC expects sluggish growth through the second and third quarter.
“Consumer confidence has fallen sharply, and business confidence has also weakened. Sectoral data show generally lower activity, since the start of the war. Prices for our export commodities have also fallen, although terms of trade are better, given lower prices for imports.
“We started this year with good momentum, but households have suffered from higher fuel prices, while uncertainty has weighed on investment. It is also increasingly clear that municipal dysfunction has become a binding constraint on growth,” he said.
Kganyago added however that domestic reforms can propel the economy toward a “rising growth trend, as global conditions stabilise”.
“Our baseline forecast is that the economy starts to recover in the second half of this year, as the shock fades. But the outlook is uncertain. We see downside risks to growth,” he noted.
Stabilising inflation
On Wednesday, Statistics South Africa revealed that the inflation rate hit its highest reading since June 2024, reaching 5% in June.
Kganyago highlighted that this was driven by higher fuel costs as a result of the war in the Middle East.
“Petrol and diesel prices eased this month, but global prices have now risen again. We expect headline inflation to stay above 4% until early next year.
“Aside from fuel, goods prices have been relatively contained. The exchange rate has been resilient, with the rand close to where it started the year against the dollar, and stronger against the euro. This has helped with import prices.
“Food inflation has also slowed recently, which reflects good harvests, as well as fading effects from the outbreak of foot-and-mouth disease. El Niño may start affecting food supply next year, but this is still a risk factor, not part of our baseline,” he explained.
The Governor reiterated that while inflation outlook has “improved slightly” it still remains too high with slow growth.
“We are setting policy to achieve 3% inflation over time, ensuring the current supply shock does not de-anchor inflation expectations.
“At the same time, we recognise that South Africa’s growth prospects will be driven mainly by domestic reforms. This covers structural interventions, such as fixing local government, and improving productivity in the network sectors, like transport and energy. It also includes the macroeconomic goals of sustainable debt and permanently lower inflation.
“Our main contribution is to stabilise inflation in line with our 3% target, over time, and the MPC will act as needed to achieve that,” Kganyago concluded. – SAnews.gov.za
