Reserve Bank Governor Says Repo Rate Remains Unchanged At 8.25%

Lesetja Kganyago, who serves as Governor of the South African Reserve Bank, announced on Thursday that the repo rate will remain unchanged at 8.25 percent.

The announcement was made after a meeting of the Monetary Policy Committee (MPC) in Pretoria. Governor Kganyago said during the announcement that the load shedding in the country has been increased and prices of export commodities continue to get lower.

Furthermore, South Africa might have to deal with stronger El Niño conditions that will negatively impact the agricultural sector and increase the risk of natural calamities. He noted that the GDP growth forecast for 2024 and 2025 remained unchanged.

"South Africa's external financing needs will increase as the current account deficit expands from a forecasted 2.0 percent of GDP this year (from 1.9 percent), to 3.0 percent of GDP in 2024 and to 3.4 percent of GDP in 2025," he said, SA News reported.

He added, "Sharply lower tax revenue, higher employee compensation, and ongoing financing needs of state-owned enterprises are expected to keep the long-term cost of borrowing elevated. Despite the forecasted moderation of inflation, long-term bond yields currently trade around 12.6 percent."

Governor Kganyago further admitted that the value of the rand has weakened over the past as it depreciated by 10 percent against the US dollar.

"The implied starting point for the rand forecast is R18.45 to the US dollar, compared with R18.13 at the time of the previous meeting," he said. "Risks to the inflation outlook are assessed to the upside."

Kganyago shared that the headline inflation is moderate on a global level. However, food price inflation continues to remain high and oil markets have tightened significantly.

He continued, "Despite the recent easing in some food price components, domestic food price inflation was still elevated at 8 percent in August and the risk of drier weather conditions in coming months has increased."

"We expect food price inflation to moderate further in the near term, but with high risk that it picks up later in 2024," he added. "In the absence of sustained increases in energy supply, electricity prices continue to present clear inflation risks."

Governor Kganyago admitted that load shedding and logistics constraints also played a role in increasing business expenses and the cost of living in the country. In fact, the fuel and food prices are uncertain, which creates a risky environment to forecast average salaries.

Looking at the whole condition, MPC decided to not change the 8.25 percent repo rate. The next announcement of MPC will be issued on Nov. 23, this year.