South African Reserve Bank Governor Lesetya Kganyago said the bank would not cut interest rates until inflation was brought under control, standing firm despite calls for a rate cut ahead of the national election.
“The reason interest rates are where they are is because inflation is where they are,” Cugañago said in an interview with Bloomberg on the sidelines of the Group of 20 (G20) finance chiefs and central bank governors meeting in Sao Paulo on Wednesday. said. “The challenge of containing inflation is not yet over. Until that is done, I see no reason why the monetary stance needs to change.”
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The central bank has kept the benchmark interest rate at 8.25% since May, the highest level in nearly 15 years, and Kganyago's comments have been used repeatedly by him to argue that it is too early to ease policy. This reflects the route.
The central bank prefers to keep inflation expectations at the midpoint of its target range, at 4.5%. Inflation has been above that level since May 2021 and is expected to settle at that level next year.
“The outlook for inflation is uncertain and volatile. We see no reason why we need to change our monetary policy stance until inflation stabilizes at and remains at our desired 4.5% level.”
electoral pressure
The governor cited food prices, geopolitical risks, and the impact on global supply chains and energy markets as some of the upside risks to the inflation outlook. He also said the bank would not bow to electoral pressure as the country prepares to vote on May 29.
Read: Godongwana rejects ruling party's call to put pressure on Saab
The ruling African National Congress is facing the biggest threat to its national majority since it came to power 30 years ago amid a power outage that has caused unemployment to rise and economic growth to stall.
This has led to renewed calls for central banks to expand their responsibilities to include employment and economic growth.
“They can't put pressure on us, but they can make noise. Constitutionally, we're supposed to act independently,” Kganyago said.
“What's important is that the central bank is protected from political interference.”
The Monetary Policy Committee is expected to meet at the end of next month to make another rate decision before the election.
gold reserves
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Finance Minister Enoch Godongwana last week announced plans to ease debt pressure on South Africa's finances by leveraging R150 billion from the proceeds of gold and foreign exchange contingency reserve accounts held at the South African Central Bank.
Read: Treasury taps R500 billion emergency reserve account
Asked about drawdowns and plans to transfer future profits from the account to the Treasury, the governor said there would be a “permanent framework” that would be transparent and set out how reserves would be withdrawn and liquidity would be neutralized. said it was necessary.
inflation target
Kganyago said the central bank's plan to revise its inflation target, which has the backing of the national treasury, would only be revised below the midpoint of 4.5% and not above it.
Read: Treasury supports review of Saab inflation target
The Treasury said last week that work is underway to consider whether it makes sense to adopt a narrower inflation targeting range or move to a single point target.
Mr Kganyago, who was first appointed governor in 2014, is currently serving his second five-year term, which ends in November.
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