The Governor of the South African Reserve Bank (SARB), Lesetja Kganyago, said on Tuesday (2 June) that the institution is determined to bring inflation back to its 3% target, defending last week’s interest rate hike as a necessary measure to prevent the secondary effects of the oil shock triggered by the war with Iran from becoming entrenched in the economy.
Last Thursday (28), the SARB raised its main benchmark interest rate by 25 basis points to 7%, with four out of six members of the Monetary Policy Committee supporting the decision.
South African inflation rose to 4% in April, up from 3.1% in March, moving closer to the upper limit of the central bank’s target range. The institution, which aims to keep inflation at 3% with a tolerance band of one percentage point, also revised its forecasts upwards, now projecting inflation of 4.4% in 2026 and 3.7% in 2027.
Africa’s most industrialised economy is a net oil importer and has been affected by rising energy prices linked to the conflict with Iran. Although the government has implemented limited measures to cushion fuel price increases, inflationary pressures continue to build.
According to Kganyago, second-round effects of the oil shock are already emerging, including higher food prices driven by increased diesel and fertiliser costs. The central bank expects underlying inflation to remain around 4% in the first half of next year.
The governor also warned that inflation expectations could rise quickly, as businesses and consumers still remember recent periods of high inflation. For this reason, he said, interest rate increases are intended to send a clear signal that the monetary authority remains committed to controlling prices.
“By adjusting interest rates, we expect to send a clear and credible signal that we will keep inflation under control,” Kganyago said in a speech to economists in Johannesburg, adding that the bank will not allow an inflation spiral that would particularly harm vulnerable citizens.
He also rejected any return to the former inflation range of 3% to 6%, reaffirming commitment to the current 3% target.
The next inflation expectations survey is due at the end of June.
Source: Reuters
