Too early to call inflation peak, Kganyago says

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Lesetja Kganyago, Reserve Bank president. Picture: Deon Raath
Lesetja Kganyago, Reserve Bank president. Picture: Deon Raath

South Africa’s central bank governor said it’s too early to call the peak of inflation that’s running at its fastest pace in 13 years.

“Until the public can see that now inflation is definitely on a downward trajectory, it is too early to call the peak,” Lesetja Kganyago said Thursday in an interview in Le Morne, on the southwestern coast of Mauritius. 

Until “we feel that inflation is now under control and is on a downward trajectory towards where we want, which is the mid-point of our inflation targeting range” the bank must do whatever it takes to nip inflation in the bud, he said. Kganyago is attending a meeting of central bank governors.

Annual inflation quickened to 7.8% in July and core inflation, which excludes the prices of food, non-alcoholic drinks, fuel and electricity, accelerated to 4.6%, breaching the midpoint of the central bank’s target range of 3% to 6% for the first time in more than four years. The Reserve Bank’s monetary policy committee prefers to anchor inflation expectations close to 4.5%.

Analysts including Investec Bank. Chief Economist Annabel Bishop have said that the July number may have been the peak of the cycle after gasoline and diesel costs fell last month. The decline continued in September. 

“We don’t have to wait for it to reach the midpoint,” the governor said. “What we have to see is this is the trajectory. It is now going to the mid-point and that is what would indicate to the price setters in our economy that inflation is now under control.”

Central banks across the globe are unleashing the most aggressive tightening of monetary policy in a generation to cool surging inflation and stem portfolio outflows. South Africa has raised its benchmark interest rate by 175 basis points this year -- with a surprise 75-basis-point increase in July being its biggest in almost two decades. 

shock swing to a current-account deficit in the second quarter may be a factor in the central bank hiking by a similar margin on September 22, economists from Goldman Sachs, Standard Chartered Bank and Absa said. 

“Given the SARB’s concern about exchange rate risks to the inflation outlook, the diminishing buffer from the current account surplus in the face of tighter global financing conditions is a hawkish signal,” Absa Economists Peter Worthington, Miyelani Maluleke and Sello Sekele said in a research note Thursday. 

Traders are fully pricing in a 50-basis-point hike, but see a chance of a bigger move.


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