The South African Reserve Bank Governor, Lesetja Kganyago, said this week that he ruled out cutting interest rates as inflation is still too high in the country.
THE RAND’S position against the dollar remained weak this week and showed minimal strength on Friday.
The rand was trading at R19.01 to the dollar on Friday and was as high as R19.16 to the dollar this week.
According to Nedbank’s weekly economic monitor, the rand’s weakness and pressure against the dollar could be attributed to the US delaying interest rate cuts. The rand was also impacted negatively by continued attacks in the Red Sea.
“The rand depreciated further this week as the US dollar firmed on expectations of delayed interest rate cuts by the Fed. The local unit was also weighed down by the ongoing tensions in the Middle East, which have bolstered demand for safe-haven currencies, hitting emerging-market currencies across the board. Over the past week, the currency weakened by 1.66%, 0.87% and 0.94% against the dollar, euro, and pound, respectively,” the bank said.
“The dollar also gained ground against its peer economies after strong retail sales and labour market data highlighted the ongoing strength in the US economy, further dashing hopes for imminent interest rate cuts.”
SA INTEREST RATES
The South African Reserve Bank (SARB) Governor, Lesetja Kganyago, told media outlets this week that he ruled out cutting interest rates as inflation is still too high in the country.
Kganyago was speaking to Bloomberg TV at the World Economic Forum in Davos, Switzerland, and noted that while real rates are not as high as before, they are not where he wants them to be.
“Our real rates are not particularly high, and inflation has come down – it’s within target – but it is not quite where we would like to see it,” Kganyago said.
The Reserve Bank’s Monetary Policy Committee (MPC) meets at the end of the month and Jee-A van der Linde, Oxford Economics Africa senior economist noted that she expects that government will only think about cutting the interest rate once the US Federal Reserve enters easing territory, as noted by Bloomberg.
FNB also expected the repo rate to remain unchanged at 8.25%, meaning the prime lending rate will hold firm at 11.75%.
However, the bank’s senior economist, Koketso Mano, does not expect the cutting cycle to start just yet.
“We think the MPC still requires more evidence that inflation will anchor at the 4.5% target within the policy horizon.
“Unfortunately, heightened geopolitical tensions, biosecurity as well as adverse weather patterns complicate the deceleration trend in inflation and could prolong the lift in inflation expectations away from target,” said Mano.
