By Ntando Thukwana, Bloomberg
South African central bank Governor Lesetja Kganyago promised that officials will lower the inflation rate back to its 3% target despite headwinds from the Iran war.
“Let there be no doubt, the South African Reserve Bank will be getting inflation back down to 3%,” he said in remarks prepared for delivery to a conference hosted by the Bureau for Economic Research on Tuesday in Johannesburg. “I hope our history of delivering on our targets makes that promise convincing.”
Kganyago and his colleagues last week raised borrowing costs by 25 basis points to 7%, delivering the first rate increase in three years as inflationary pressures intensified after the start of Iran war. They also signaled that further tightening may be warranted if the conflict drags on.
“By raising rates, we hope to send a clear and credible signal that we will keep inflation under control,” he said. “I cannot tell you now if more will be needed, or how much. We take our decisions meeting by meeting. But the policy objective should be crystal clear.”
Inflation has drifted away from the central bank’s 3% target since the war began on February 28, driven by a surge in energy prices, and is projected to reach 4.9% as early as the third quarter this year, according to the bank’s latest forecasts.
Policymakers also considered a 50-basis-point hike last week and reviewed three scenarios, all of which implied additional tightening, with the most adverse projecting a further 75 basis points of increases by the third quarter.
Locally, gasoline prices are set to reach a record high this month after the government rolled back some temporary relief measures that had cushioned consumers against fuel-cost increases sparked by the Iran conflict.
The Sarb adopted the 3% inflation goal last year, replacing a 3% to 6% range that had been in place since 2000.
Kganyago said there was no question of the central bank reverting back to the wider target and said the shift to 3% had delivered clear benefits to South Africa through lower government borrowing costs. The country is in a better place now despite the Middle East conflict, he said.
“Target reform has been one of the big wins for South Africa recently,” he said. “We are not going to snatch defeat from the jaws of victory.”
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