Pretoria: The South African Reserve Bank's Monetary Policy Committee (MPC) has kept the repo rate unchanged at 7%. This decision was announced by Reserve Bank Governor, Lesetja Kganyago on Thursday. The prime lending rate will also stay steady at 10.50%. The committee's decision came after a split in preferences among its members, with four opting for a hold, while two favored an increase of 25 basis points. Kganyago noted the uncertain economic outlook and emphasized that the current policy stance remains appropriate given previous rate increases.
According to South African Government News Agency, the Governor addressed concerns about economic growth, highlighting that while the first quarter showed stronger-than-expected growth, the MPC anticipates sluggish growth in the upcoming quarters. Weaker consumer and business confidence, along with reduced sectoral activity since the onset of the war, have contributed to this outlook. Although export commodity prices have fallen, improved terms of trade due to lower import prices have somewhat offset this impact. Challenges such as high fuel prices and municipal inefficiencies are further constraining growth, though domestic reforms could foster a rising growth trend as global conditions stabilize.
Regarding inflation, Statistics South Africa reported that the inflation rate reached 5% in June, its highest since June 2024, primarily due to elevated fuel costs linked to the Middle Eastern conflict. While recent easing of petrol and diesel prices provided temporary relief, global price increases have resumed. Kganyago expects headline inflation to remain above 4% until early next year. Despite some containment in goods prices and a resilient exchange rate, potential risks like El Ni±o could impact food supply in the future.
Kganyago emphasized the importance of setting policy to achieve long-term inflation targets, aiming for 3% inflation over time. He underscored that South Africa's growth prospects hinge on domestic reforms, including structural changes and improvements in sectors like transport and energy. The Reserve Bank's primary role will be to stabilize inflation in alignment with its targets, with the MPC ready to act as necessary to ensure economic stability.