South Africa’s (SA) central bank maintained its main lending rate at 6.75% this Thursday, saying caution was needed as higher energy prices triggered by the United States (US) Israel war against Iran would push up inflation.
Economists polled by Reuters had expected no change in the repo rate, as the Middle East conflict has forced central banks around the world to revise their forecasts and reconsider the path for interest rates.
SA’s inflation was well-contained in the months before the conflict, slowing to the central bank’s 3% target in February but it is expected to pick up as the effects of anticipated fuel price hikes and a weaker exchange rate filter through.
The decision by the Monetary Policy Committee of the South African Reserve Bank (SARB) was unanimous.
“We warned of elevated risks, and we have been proceeding cautiously in our rate setting,” Governor Lesetja Kganyago said, reading out the decision. “Now a crisis has hit, this prudent approach is proving appropriate.”
The central bank expects headline inflation to accelerate to around 4% soon, with fuel inflation of more than 18% for the second quarter.
Before the US and Israel started the war and then Iran retaliated, economists had been predicting further policy easing by the SARB this year.
But those bets are now off.
Kganyago said the SARB’s projection model showed rates unchanged for a longer period, postponing cuts seen in January.
—Reuters—
