The South African Reserve Bank’s Monetary Policy Committee has voted to keep the repo rate at 8.25% for a sixth consecutive meeting, dashing household hopes of immediate relief from 14-year-high borrowing costs. Governor Lesetja Kganyago announced the 5-0 decision on Thursday, noting that lingering inflation risks and renewed Middle-East oil tensions outweighed slowing domestic demand.
The move leaves the prime lending rate at 11.75%, meaning the average mortgage on a R1.5 million home remains roughly R3,000 costlier per month than before the current hiking cycle began in November 2021. Credit regulator data show new vehicle finance contracts dropped 18% year-on-year in February, while retail sales volumes have contracted for three straight quarters.
Kganyago said the MPC expects headline inflation to average 5. 1% in 2024, just above the 4. 5% midpoint of the 3-6% target band.
“We cannot yet declare victory over inflation,” he told reporters, citing possible second-round effects from April’s 12. 7% electricity-price increase and Brent crude hovering near USD 90 a barrel.
Consumers already addressing food — price inflation of 5.7% greeted the decision with dismay. “We budgeted for a small cut so we could fix the roof and maybe put more on the bond,” said Pretoria teacher Nomsa Mthembu, 42. “Now we wait again.”.
The bank projects GDP growth of only 1. 2% this year, barely enough to stabilise debt metrics that Treasury estimates at 73% of GDP. Analysts warn that high real rates could deepen the 32.
1% unemployment rate. “With private credit demand falling, inflation looks set to slow further in the second half,” Investec chief economist Annabel Bishop argued, predicting a first 25-basis-point cut in September.
Policymakers counter that supply shocks remain potent. “A sustained upward move in fuel prices of 10% could add 0.3 percentage points directly to inflation,” Kganyago noted. The MPC statement pledged to “look through” temporary price spikes only if second-round price and wage pressures stay muted.
Africa’s most industrialised economy last cut rates in July 2020 during pandemic lockdowns. Since then the bank has lifted borrowing costs by 475 basis points, the steepest tightening cycle since 2006. Peer central banks in Ghana and Nigeria have recently paused after aggressive hikes, while Kenya signalled it may soon ease.
The rand firmed 0.3% against the dollar following the announcement, as traders priced out modest expectations of a May reduction. Government bonds held steady, with the 2035 yield trading at 10.95%, signalling investors are comfortable with the inflation outlook despite fiscal risks looming in October’s medium-term budget.
Finance Minister Enoch Godongwasa is expected to outline R30 billion in spending cuts to meet 2024/25 deficit targets, clouded by R9 billion shortfalls at state logistics group Transnet. Analysts say monetary and fiscal stances must move in tandem to contain debt-service costs that now absorb 18 cents of every tax rand.
Source: South African Reserve Bank Governor’s media briefing, 25 April 2024
