The MPC holds interest rate steady at 7% – a balancing act continues

Source: Reuters. South African Reserve Bank's Lesetja Kganyago.

Four members preferred to keep rates on hold, while two favoured a cut of 25 basis points.

"Since September last year, we have reduced rates by 125 basis points, and we want to see how this is affecting the economy, how expectations evolve, and how inflation risks are resolved. The forecast has rates easing gradually as inflation returns to the bottom end of the 3-6% target range. The MPC emphasises that stabilising inflation at 3%, rather than 4.5%, implies a lower longer-term level for the policy rate," Governor of the South African Reserve Bank (Sarb)," Lesetja Kganyago said.

"That said, the rate path from the Quarterly Projection Model remains a broad policy guide. As usual, our decisions will be taken on a meeting-by-meeting basis, with careful attention to the outlook, data outcomes, and the balance of risks to the forecast.

"In our economic modeling, inflation expectations play an important role in shaping the transition to our 3% preference.

Kganyago said inflation expectations are seen as crucial in guiding the economy toward the Sarb’s preferred 3% inflation target.

"Given uncertainty about the behaviour of expectations, for this meeting we considered scenarios where expectations adjust more slowly than they do in our baseline. These scenarios treat expectations as more backward looking, with less attention paid to the Sarb’s communication," he said.