Reserve Bank governor Lesetja Kganyago has suggested the central bank’s almost two-year-long fight against inflation is paying off, saying recent data showed clear signs of the reversal of the inflationary trend.
Speaking to Business Day ahead of Talk to the SARB Forum in Soweto interactive public sessions with the residents and businesses, Kganyago refrained from saying if the Bank would pause its tightening cycle or when interest rates would start coming down.
“We have got to tame this monster,” he said. “The latest data show that we have clearly reversed the inflation trend and we have got to bring inflation to levels that are consistent with price stability.”
SA’s annual inflation rate fell for the second month in May to 6.3%, the lowest level since April 2022, thanks to slower food and transport prices. It had hit a 13-year high of 7.8% in July that year, driven by a combination of factors such as high fuel prices, supply chain disruptions, a weak exchange rate, power outages, an accommodative macroeconomic policy and global inflation pressures.
Still, inflation has remained above the Bank’s target range of 3%-6% for a year, prompting Kganyago and his monetary
policy committee to raise interest rates repeatedly, pushing the key repurchase rate to 8.25%, the highest level in 14 years.
The hawkish stance has attracted criticism from some quarters, including SA’s largest trade union federation Cosatu, which has accused the Bank of being “indifferent” to the plight of workers burdened with high debt levels and small businesses struggling to access credit.
Other critics have said raising interest rates to tame inflation is a blunt instrument that ignores the fact that most inflation in SA is imported and not driven by domestic demand or wage pressures, and an interest rate policy has little effect on the exchange rate or inflation.
“I must remind South Africans that when inflation was contained and even declined to below 3% in 2020, prime was only 7%. And the reason why prime is high is not that the Reserve Bank takes pleasure in it. It is because inflation is eroding the incomes of South Africans and steps had to be taken to tame this monster inflation,” Kganyago said.
Asked if there is anything missing in the Reserve Bank’s toolkit to fulfil its price stability mandate, he said while the Bank is primarily responsible for price stability “there are other actors in the broader society who can help bring inflation down.
Administered prices
“What municipalities do with rates and taxes, and what they do with water and electricity tariffs is important. It counts that if tariff increases are contained within the inflation target rate it will help us with price stability. All I’m saying is that all of us in society with levers to pull should help us to bring inflation down.”
The issue of administered or regulated prices has been a persistent challenge for the Bank. It has repeatedly pointed out how public entities and the government’s own regulatory processes hinder its efforts to lower inflation and interest rates.
The remarks follow a 14% surge in administered prices in 2022, more than twice the headline inflation rate. This was due to sharply higher fuel inflation, which soared to 56.2% in July and has since fallen to 8.1%. But power prices have risen above the inflation rate for 15 years and are set to increase 17.5% this year and 14.5% next.
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