The governor of the South African Reserve Bank, Lesetja Kganyago, stated on Wednesday (6) that monetary policy makers need to keep all options open regarding interest rates, as geopolitical shocks are clouding the economic outlook and inflation expectations remain above target.
Kganyago noted that while inflation is not yet anchored at the central bank’s 3% target, it has been declining, while debt appears to be stabilizing and economic growth has been slightly stronger.
South Africa’s annual inflation rose slightly to 3.1% in April from 3.0% in March, as the effects of the war between the United States (U.S.) and Israel against Iran—which have been putting upward pressure on domestic oil prices—began to feed through to the economy.
Africa’s largest economy is a net oil importer, making it highly vulnerable to fluctuations in international prices. Many economists expect inflation to rise above 4% in the coming months.
Speaking at an investment conference in the North West province, Kganyago stated that supply shocks resulting from the conflict could further drive up domestic inflation and hamper production, adding that bringing inflation back to target following such shocks may require timely decisions on interest rates.
“It is not desirable to put the economy under further strain, but we need to keep our options open,” he noted.
Kganyago added that geopolitical risk is currently more significant than at any other point in his career, with shocks caused by conflicts driving up food and fuel prices.
He also stated that the monetary policy interest rate cannot influence global oil prices, but that the central bank can manage inflation expectations through clear communication and, if necessary, through rate changes.
“The success lies not in avoiding higher inflation now, but in returning to the target once the shock has passed,” said Kganyago, also noting that the rand has held up well this year despite the conflict in the Middle East, recovering quickly after an initial drop and trading mostly at stronger levels than in 2025.
The Monetary Policy Committee of the South African Reserve Bank has kept its key interest rate at 6.75% at its last two meetings. The next meeting will take place on May 28.
Source: Reuters
