The monetary policy committee of the Reserve Bank has kept the repo rate steady at 8.25%, but continues to warn about sticky inflation being a hindrance to cuts any time soon.
In his speech, governor Lesetja Kganyago said the Bank now expects inflation to return to the midpoint of its 3%-6% target band in the second quarter of 2025.
This is an improvement on comments from the previous MPC meeting in March, where the committee said it expected to reach that goal only by the end of 2025.
Kganyago did warn, however, that “the task of achieving our inflation objective is not yet done”.
“The committee remains concerned that inflation expectations are elevated.”
Regarding economic growth, Kganyago said economic activity in the first quarter was worse than expected “despite reduced load-shedding”.
While “we expect slightly weaker growth in the first quarter, this should improve in the second”, he said.
The US Federal Reserve has been extremely hawkish in recent communication, with most market participants believing rates may only begin to be lowered elsewhere after it makes its first cut.
The date of a potential first cut has been pushed out several times throughout 2024. At the beginning of January, markets were forecasting total cuts by the Fed of 150 basis points in 2024. There is now some doubt that there may be a cut at all in 2024.
“There is still considerable concern” about the global inflation outlook, said Kganyago, while adding that recent inflation data had come out slightly better than expected.
A day after the latest national election, the rand had lost ground prior to the speech, but recovered slightly thereafter. At 3.16pm it was 1% weaker at R18.60/$, after reaching the day’s worst level of R18.76.
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