WeeklySA_AdminRise: The inflation expectations have risen above the Reserve Bank’s target, governor, Lesetja Kganyago warned…
By Lehlohonolo Lehana
South African Reserve Bank Governor Lesetja Kganyago has warned that inflation expectations had risen above the central bank’s 3% target, justifying the May interest-rate increase and signalling further tightening may be needed when policymakers meet later this month.
The central bank raised rates in May for the first time in three years, lifting them by 25 basis points to 7% to prevent an oil shock caused by the Iran war from spilling into lasting inflation.
“The inflation expectations have risen, they are above our target and that is the concern, and that is what we should actually be responding to,” Kganyago said in an interview with Francine Lacqua on Bloomberg Television this week.
He emphasised that bringing expectations back to target was the priority after a recent reading of more than 4%, which showed the central bank’s decision to raise rates in May “was a correct one.” He declined to comment on what policymakers might decide at their next meeting.
“What the call will be in July we will see when we get there,” he said. The monetary policy committee will announce its next rate decision on July 23. Bets in interest-rate futures markets show investors expect them to hike again’’.
South African inflation quickened to 4.5% in May amid surging energy prices and Kganyago warned that the central bank would take steps to keep inflation expectations anchored.
The governor warned against waiting too long to act, saying “if you are late to the game it is a different ballgame” and would require more aggressive tightening. Core inflation, which strips out energy and food prices, is expected to peak in the first quarter of next year, he said.
The central bank was navigating an uncertain environment complicated by geopolitical volatility and the inflationary effects of artificial intelligence in the short term.
On recent anti-migration protests in South Africa, Kganyago said the authorities acted decisively to maintain order while respecting constitutional rights to peaceful demonstration. He said he had not encountered investor concerns about political stability, noting “you saw decisive action coming from the South African authorities, and in the main the protests were peaceful.”- Fullview.
