Reserve Bank governor Lesetja Kganyago says inflation excluding fuel prices is beginning to rise and is expected to peak in the first quarter of next year.
Speaking to Business Day on the sidelines of the inaugural Tito Mboweni Memorial Lecture on Thursday, Kganyago said the Reserve Bank’s focus is on whether price shocks spread beyond their initial impact.
“The rise in oil prices gets felt immediately at the pump,” he said. “The way in which a central bank reacts to those shocks is understanding the nature of the shock and whether those shocks lead to other prices rising outside of the fuel price.
“If we exclude fuel prices from overall inflation, prices are beginning to rise, and we expect that they will continue to rise and peak in the first quarter of next year. And that is what monetary policy has to address.”
Price stability
Asked about the balance between the need for lower inflation and lower interest rates to support the economy, Kganyago said price stability remains the Bank’s long-term objective.
“In the short run we will face shocks. There is nothing monetary policy can do about those shocks. What we can do is ensure that in the long run inflation is low and stable,” he said.
“In the long run, that trade-off does not exist. And that is what we should actually be focusing on. And that is what Tito Mboweni knew.”
Kganyago said the legacy of the late former Reserve Bank governor, who held the position from 1999 to 2009 and died in 2024, extended beyond inflation targeting.
“I would like to associate Mboweni’s legacy with transparency and accountability to the people of South Africa. He took central banking to the people, and the monetary policy forums meant that we were able to interact with people broader than the analyst community we normally interact with.”
Worsening imbalances
The lecture was delivered by Axel Weber, former president of the Bundesbank.
Drawing on a recent report prepared for the G7, Weber warned that global economic imbalances are increasing and that IMF and World Bank projections suggest they will continue to grow.
China continues to rely heavily on exports due to weak domestic demand, the EU faces weak internal demand and investment, and the US is running huge fiscal deficits, Weber said.
“These structural divergences underpin persistent external imbalances and will continue to contribute, if not corrected, to global tensions,” he said.
He criticised the use of tariffs to address trade imbalances and raised concerns about US fiscal deficits and its dependence on capital inflows from the rest of the world.
“This is a massive refinancing of the US from the rest of the world,” Weber said.
Weber referred to Mboweni’s economic views repeatedly, saying the former governor and finance minister believed in macroeconomic stability, international co-operation and disciplined public finances.
“He believed in rules-based, co-operative, credible central bank policy, open markets with safeguards and disciplined public finance,” Weber said.
Mboweni would probably have warned that smaller economies such as South Africa could face weaker growth, inflationary shocks and social instability if major economies failed to co-operate, he added.
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