Reserve Bank governor Lesetja Kganyago at the central bank's offices in Pretoria. Picture: BUSINESS DAY
Reserve Bank governor Lesetja Kganyago at the central bank's offices in Pretoria. Picture: BUSINESS DAY

The SA Reserve Bank is steadfast that it wants to see inflation expectations anchored at the 4.5% midpoint of its target range, governor Lesetja Kganyago said.

While the central bank unexpectedly raised its key rate to 6.75% in November, its current policy stance remains accommodative with the benchmark rate still below neutral, Kganyago said in an interview last week with Bloomberg TV in Washington.

Consumer inflation was below the target midpoint for the second straight month in February (though economists have told Business Day it is expected to be closer to the midpoint for March). It will stay within the 3%-6% range until at least the end of 2021, according to central bank forecasts. The monetary policy committee (MPC) sees inflation averaging 5.3% in 2020 and 4.7% in 2021.

The committee welcomes the fact that inflation expectations have declined, but it wants to see more evidence of lower future prices, Kganyago said.

“For you to have lower interest rates, you have got to have lower inflation, not just yesterday’s inflation but lower inflation on a forward-looking basis,” he said.

The comments may knock expectations for a cut in interest rates this year, particularly given a recent surge in oil prices that had already pushed petrol costs to a near-record high. The central bank is under pressure to ease policy as economic growth remains anaemic.

The last time any panel member voted to ease borrowing costs was in March 2018, even as the economy went through a recession last year and will only reach 2% growth in two years’ time, according to central bank forecasts.

Forward-rate agreements starting in eight months, used to speculate on borrowing costs over the period, are pricing in a less than 50% chance of a 25 basis-point cut in 2019, down from about 70% last week.

Kganyago said the one thing that could boost economic growth is restoring business confidence. While sentiment surged after President Cyril Ramaphosa came to power in 2018 and replaced Jacob Zuma following almost nine scandal-ridden years, an index tracking this fell back again and was at a seven-month low of 91.8 in March.

Restoring confidence will “entail government taking certain concrete steps on the business front,” Kganyago said.

Ramaphosa’s administration has taken important policy decisions and “we need the government to implement those with resolve,” he said.