Kganyago says half-point interest rate hike possible in July

accreditation
0:00
play article
Subscribers can listen to this article
Lesetja Kganyago. Picture: Deon Raath
Lesetja Kganyago. Picture: Deon Raath
  • Governor Lesetja Kganyago says the SA Reserve Bank may consider raising interest rates by half a percentage point in July.
  • Annual inflation that surged above the Reserve Bank’s target range for the first time in more than five years in May had moved traders to price in at least one 75-basis-point increase this year.
  • The central bank's moves are more "like taking your foot off the accelerator than slamming on the brakes," Kganyago said. 


Traders tempered expectations for the largest South African increase in borrowing costs in almost two decades after the head of the nation’s central bank said it may consider raising interest rates by only half a percentage point in July.

Annual inflation that surged above the Reserve Bank’s target range for the first time in more than five years in May had moved traders to price in at least one 75-basis-point increase this year. A three-quarter percentage point hike would be the biggest since September 2002, when the bank lifted the benchmark rate by 100 basis points.

Before the price shock, the implied policy rate path of its quarterly projection model, which the monetary policy committee uses as a guide, indicated the key rate will be at 5.3% by year-end.

While the central bank’s baseline scenario for increases of 25 basis points at each of its next three meetings remains, the possibility of lifting the repurchase rate by 50 basis points next month is "not off the table," governor Lesetja Kganyago said in an interview with Bloomberg TV on the sidelines of the European Central Bank’s annual policy forum in Sintra, Portugal.

Forward-rate agreements, used to speculate on borrowing costs, are now pricing in about 50 basis points of tightening at the next MPC meeting scheduled for July 21. That compares with 63 basis points before Kganyago’s comments. The market anticipates 175 basis points of hikes in total by year-end.

The annual inflation rate climbed to 6.5% in May, compared with the central bank’s estimate of 6.3%, Kganyago said. The Reserve Bank prefers to anchor inflation expectations close to the midpoint of its 3% to 6% target range and has raised the key rate by a cumulative 125 basis points to 4.75% since November.

While the MPC seeks to look beyond temporary price shocks, it can’t wait for "concrete evidence that second-round effects are kicking in" in an uncertain environment, he said. It’s "going to have to take a view about the likelihood of second-round effects kicking in and thus acting."

Aggressive upward moves should help prop up a local currency that’s weakened since the Fed delivered it biggest interest-rate increase since 2000 and anchor domestic inflation expectations.

Still, the unwinding of extraordinary pandemic-era monetary policy stimulus measures are likely to draw criticism from some politicians and labor unions amid a deterioration in domestic economic prospects and fears of a cost-of-living crisis.

"We don’t even see it so much as a slamming of the brakes," Kganyago said. "It is more like taking your foot off the accelerator than slamming on the brakes."

In May, the central bank cut its 2022 economic growth forecast for South Africa to 1.7% from 2%. That’s after deadly floods wreaked havoc in KwaZulu-Natal province, the second-largest contributor to gross domestic product.

It’s likely to lower its projection even further after state-owned power utility Eskom, which generates almost all of the country’s electricity, deepened power cuts to the worst level since 2019.

Get the biggest business stories emailed to you every weekday.

Go to the Fin24 front page.


We live in a world where facts and fiction get blurred
In times of uncertainty you need journalism you can trust. For 14 free days, you can have access to a world of in-depth analyses, investigative journalism, top opinions and a range of features. Journalism strengthens democracy. Invest in the future today. Thereafter you will be billed R75 per month. You can cancel anytime and if you cancel within 14 days you won't be billed. 
Subscribe to News24
Rand - Dollar
16.43
-1.4%
Rand - Pound
19.81
-0.9%
Rand - Euro
16.70
-0.5%
Rand - Aus dollar
11.54
-0.2%
Rand - Yen
0.12
-1.6%
Gold
1,779.89
-1.2%
Silver
20.27
-2.7%
Palladium
2,157.00
-3.2%
Platinum
937.50
-3.0%
Brent Crude
98.15
-1.5%
Top 40
64,022
+0.0%
All Share
70,741
+0.0%
Resource 10
63,315
-1.1%
Industrial 25
86,967
+0.5%
Financial 15
16,154
+0.6%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders