South Africa’s risk premium limits room for rate cuts, says Reserve Bank | IOL Business Report

JOHANNESBURG - The South African Reserve Bank’s ability to cut interest rates to boost the economy is limited by political and policy uncertainty and inflation that’s still not sufficiently anchored at the midpoint of its target range.

Investors pay a premium for South African debt to compensate for the risk of holding it and this constrains monetary policy by raising the interest rate needed to stabilize inflation, the central bank said in its bi-annual Monetary Policy Review on Tuesday. That’s partly due to deteriorating fiscal metrics caused by bailouts for state-owned companies such as Eskom Holdings SOC Ltd.

While price growth has shifted close to the middle of the band of 3% to 6%, expectations remain above 4.5%, suggesting that the rate has not yet been anchored at the midpoint, according to the Reserve Bank.

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