‘No-frills’ Reserve Bank saved South Africa from high inflation and interest rates, says Deputy Governor
Fundi Tshazibana. Image: Provided
Proactive efforts by South Africa’s central bank to contain price growth mean the country has a good chance of weathering the worst global inflation shock in a generation “without particularly high inflation or interest rates”, it said. Deputy Governor Fundi Tshazibana.
Policymakers began a round of preemptive hikes in November and have since raised the benchmark rate by 200 basis points to 5.5%, undoing some of the 2020 pandemic-era stimulus. repeated criticism from some politicians and trade unions who have urged the central bank to do more to support cash-strapped South Africans and the national economy.
The Reserve Bank has a constitutional mandate to maintain price stability in the interest of balanced and sustainable economic growth and it prefers to anchor inflation expectations near the 4.5% midpoint of its target range. As the change in the headline consumer price index exceeded the target ceiling for a third straight month in July, economists including Annabel Bishop of Investec Bank predict the 7.8% result will likely be the peak of the cycle.
“I hope you have all taken the time to appreciate that inflation in South Africa has been lower than inflation rates in the US, UK and even Germany, the latter month,” Tshazibana said in a copy of a speech posted Thursday on the central bank’s website. “Perhaps more pertinently, we haven’t seen target misses of the magnitude seen by many of our peers, and unlike those countries, we haven’t had to raise rates well into restrictive territory. ”
Reading the stories of what central bankers got wrong that contributed to the continued spike in inflation, “I realize that despite criticism – we at the SARB are sometimes attacked for not being adventurous – it is clear that when central banks get adventurous, the consequences can be even more unpopular,” she said.
In retrospect, South Africa’s central bank likely delivered “about the right amount of stimulus in 2020, and we probably started withdrawing stimulus at about the right time in late 2021,” Tshazibana said. While Russia’s war with Ukraine was an unexpected shock, South Africa’s inflation profile was not “too problematic” before, she said.
Despite last month’s most aggressive rise in nearly two decades, South Africa’s real interest rate – the differential that makes local assets attractive to foreign investors – remains deeply negative. The question of how quickly the Reserve Bank should achieve positive real rates, and ultimately a more neutral monetary policy, hinges on whether higher inflation persists, Tshazibana said.
The implied policy rate path from the Reserve Bank’s Quarterly Projection Model, which the Monetary Policy Committee uses as a guide, points to a policy rate of 5.61% by the end of the year and 6.78 % at the end of 2024.