Reserve Bank governor Lesetja Kganyago sees upside risks to inflation

Rising global energy prices and food costs continue to pose upside risks to inflation in South Africa, the central bank head said on Thursday, with consumer prices expected to return to the 3% target only in 2028.

Speaking in an interview on the sidelines of the International Monetary Fund and World Bank annual meetings in Bangkok, Governor Lesetja Kganyago said inflation is expected to average 4.4% this year before easing to within the central bank’s tolerance band in 2027 and returning to target in 2028.

The comments suggest the central bank may need to keep monetary policy tight after it raised rates by 25 basis points to 7.25% last month to combat inflation.

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“The risks to the outlook, of course, they have to do with the geopolitical uncertainty, which feeds into the oil price, what’s happening with fertiliser prices and what that could mean for the food outlook, there’s the risk of El Niño and there is risk to the grain supply chain through the Black Sea,” he said.

Underlying inflation remains a concern

“So far, the measures of underlying inflation point to an upturn in inflation, and that is a concern.”

Latest data showed headline inflation in South Africa picked up slightly to an annual 4.4% in August, mainly driven by the housing and utilities, transport, and insurance and financial services categories.

The rate increase in September was a unanimous decision following a pause in July. The next monetary policy decision is due in November.

Central bank signals cautious approach on rates

Kganyago declined to comment on the prospect of further rate hikes, saying only that the current rate was “moderately restrictive” and that future monetary policy decisions would be taken “meeting by meeting”.

Some inflationary pressures had been offset by a steady exchange rate, Kganyago said, with the South African rand little changed so far this year despite a stronger dollar.

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“In the past, when you had the oil price rise, we would have had a depreciation of the currency as well. It has been fairly stable (this year), but still that is no case for us to be complacent,” he added, citing fiscal consolidation and an appropriate monetary policy stance as factors underpinning the currency’s resilience.

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