By Kopano Gumbi, Bhargav Acharya and Sfundo Parakozov
PRETORIA (Reuters) -South Africa’s central bank kept its main interest rate unchanged on Wednesday, saying its policy stance still needs to be restrictive to address elevated inflation expectations.
The decision to maintain the repo rate at 8.25% was unanimous and in line with forecasts of analysts polled by Reuters.
The South African Reserve Bank (SARB) said in a statement accompanying its decision that headline inflation was now expected to reach the midpoint of its target range – 4.5% – only at the end of 2025, later than previously forecast.
Inflation rose to 5.6% year on year in February from 5.3% in January, nearing the top of the central bank’s preferred range.
A big contributor to the pickup in inflation in February was medical insurance premiums, and analysts say wages, education and rental costs could be sources of further inflationary pressures in the coming months.
Inflation expectations remain above the SARB’s average inflation forecasts for 2024 and 2025.
“The fact that expectations, although they have declined, are still elevated is a point of concern for us,” SARB Governor Lesetja Kganyago told a news conference.
The central bank kept its economic growth forecasts for this year and next broadly unchanged, at 1.2% and 1.4% respectively.
It said rolling power cuts – which have been a major drag on growth for more than a decade – were expected to shave off 0.6 percentage points from growth this year, falling to 0.2 percentage points next year.
Economists anticipate that the SARB will wait until the third quarter of the year before cutting interest rates, a Reuters poll published last week showed.
The poll found that South Africa’s repo rate was expected to fall to 7.50% in November, loosely translating to three consecutive cuts in meetings from July to year-end.
(Reporting by Kopano Gumbi, Sfundo Parakozov and Bhargav Acharya; editing by Alexander Winning and Mark Heinrich)
