SARB Maintains Repo Rate at 8.5% Amid Slight Inflation Improvement

As a result, the prime lending rate remains at 11.75%, based on a repo rate of 8.5%. However, Kganyago expressed concerns about administered prices.

The South African Reserve Bank’s monetary policy committee (MPC) has decided to keep the repo rate steady at 8.5% for the seventh consecutive meeting, despite a slight improvement in the inflation rate.

Reserve Bank Governor Lesetja Kganyago announced the decision following the July MPC meeting in Pretoria. Four members voted to maintain the rate, while two preferred a 25 basis point cut.

“In discussing the stance, MPC members agreed that restrictive policy remains appropriate to stabilize inflation at 4.5%. The committee assessed that an unchanged stance remained appropriate, given the inflation risks. Some members, however, were of the view that the inflation outlook had improved enough to reduce the degree of restrictiveness,” Kganyago stated on Thursday.

As a result, the prime lending rate remains at 11.75%, based on a repo rate of 8.5%. However, Kganyago expressed concerns about administered prices.

“We have had to mark up electricity inflation for this forecast round, even as other categories shifted lower,” he said, adding that services price inflation also remains uncomfortably above the mid-point.

Discussing inflation at length, Kganyago noted that the most recent headline print for May was 5.2%, unchanged from April and still in the top half of the target range. “The outlook, however, has improved somewhat. Headline consumer price inflation for this year is now projected at 4.9%, compared to 5.1% at the previous meeting.”

Kganyago predicted that in the coming quarters, the headline inflation rate is expected to drop below the 4.5% midpoint, mainly due to declining 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 US dollar. Over the medium term, we continue to see inflation stabilizing at 4.5%, with core inflation remaining close to this midpoint objective throughout.”

The Governor indicated that the forecast suggests rates will ease into more “neutral territory” by next year. “As before, the rate path from the Quarterly Projection Model remains a broad policy guide, changing from meeting to meeting,” he said.

He emphasized that the MPC's decisions will remain data-dependent and “sensitive” to the balance of risks to the outlook. “We are committed to stabilizing inflation at the mid-point of the target band. Achieving this outcome will improve the economic outlook and reduce borrowing costs.”

Kganyago also stressed the committee’s views on additional measures to improve economic conditions, highlighting the need for reasonable public debt levels, enhanced operation of network industries, reduced controlled price inflation, and alignment of real wage growth with productivity gains.

The next MPC meeting is scheduled for 19 September 2024.