In a world in which investors are getting jittery about the outlook for global inflation and interest rates, analysing the next move by the Reserve Bank is refreshingly boring.
The more important question is how long its stance will last. A report on Wednesday, based on a Bloomberg survey of economists, will show that inflation jumped to 4.3% in April. That will be the highest since February 2020, the last release before the national lockdown that would eventually result in the biggest economic contraction in a century.
Governor Lesetja Kganyago will see having been able to keep interest rates at 50-year lows as a vindication of past policy. Two months ago, some of SA’s peers in emerging markets, namely“If you want lower interest rates you have got to have lower inflation,” Kganyago told Business Day a month ago, comments that made it clear the Bank is into raise interest rates, even though its projection model suggested that policy tightening would start in the second quarter.
Since the last MPC meeting in March, it has gained just more than 7% against the dollar, meaning the currency isn’t a source of worry about inflation driven through by the price of imports. Rising consumer prices, even with the rate firmly entrenched in the midpoint of the Bank’s target range, is one reason a cut is out of the question, though a plausible argument can be made that the economy could do with more support. Faster inflation will eat into SA’s yield advantage, and encouraging outflows that may destabilise the rand isn’t something the Bank is likely to have an appetite for.
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