Kganyago says ‘priority’ to bring inflation expectations back to target
Reserve Bank Governor Lesetja Kganyago warns that rising inflation expectations remain a concern despite easing oil prices, as the SARB maintains a cautious monetary policy stance amid global uncertainty and inflation risks.
South African Reserve Bank Governor Lesetja Kganyago says he is concerned that inflation expectations have risen above the central bank’s 3% target.
In response to oil shocks resulting from the Middle East war, the bank raised rates in May for the first time in three years, lifting it by 25 basis points to 7%.
Kganyago told Bloomberg that core inflation, which strips out energy and food prices, is expected to peak in the first quarter of next year.
“What complicates the situation is that it is actually a very uncertain environment. One day the war has stopped; one day it has started again, and then the markets react to that.
“And our duty as policymakers is to try and see through that noise.”
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While the Federal Reserve in the US is preparing to hike interest rates after the US-Iran war sent energy costs soaring, its new boss, Kevin Warsh, on Wednesday said price pressures had "come down" in recent weeks.
Nevertheless, Warsh emphasised his commitment to return US inflation to the Fed's two per cent target.
Oil prices extended a retreat Thursday, seen since the United States and Iran began talks to end their conflict and keep the Strait of Hormuz open permanently.
Following the two sides' indirect discussions in Doha on Wednesday, US President Donald Trump, as well as mediators Qatar and Pakistan, offered signs that diplomacy was holding up, despite exchanges of fire over the weekend.
Speaking during the rates announcement in May, Kganyago said the Monetary Policy Committee was concerned about intensifying inflation risks and the potential for second-round effects from multiple overlapping shocks.
“The committee agreed that inflation risks had intensified, and that the challenge of large and overlapping shocks would likely trigger second-round effects, requiring a monetary policy response. Our decision was aimed at managing risks and ensuring that inflation returns to target,” Kganyago said.
