Reserve Bank Keeps Repo Rate Unchanged At 8.25%

The Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) on Wednesday disclosed that the repo rate will remain unchanged at 8.25%

SARB Governor Lesetja Kganyago said that this decision was unanimous, revealing that the committee "noted a range of risks" before announcing this verdict.

"Inflation expectations have moderated in the latest survey. This is welcome, but two years ahead expectations are still in the top half of our target range," he said, SA News reported.

He noted that expectations are anticipated to decrease towards the 4.5% target as inflation begins to slow down. Speaking about food prices in the country, he acknowledged that South Africa is going through a difficult juncture.

The governor said that last year witnessed the highest levels of food inflation since 2008. Although food inflation has started to decelerate, the present period in the growing season poses a critical situation as hot and dry conditions may lead to food inflation again.

"Considering the exchange rate, the rand has been trading somewhat weaker than we expected at our last MPC meeting. This is partly due to interest rates in the major advanced economies staying high for longer," Kganyago said.

He added, "The currency is also under pressure from weakening terms of trade. Furthermore, investors see significant near-term domestic uncertainty. We view the exchange rate as undervalued."

He mentioned that the current interest rate level indicates a restrictive policy stance, which aligns with the inflation forecast and the necessity to tackle high inflation expectations.

The inflation and repo rate projections from the Quarterly Projection Model serve as a general policy guide, which can change in response to new data in each meeting. Committee decisions will depend on data and consider the balance of risks to the outlook.

Bringing inflation to the midpoint of the target range will enhance the economic outlook and lower borrowing costs. The governor reiterated the views of the committee on additional measures that will help to improve South Africa's economic conditions.

"These include achieving a prudent public debt level, improving the functioning of network industries, lowering administered price inflation, and keeping real wage growth in line with productivity gains," he said.

The Reserve Bank has kept the repo rate unchanged since last year.