South African Reserve Bank Governor Lesetja Kganyago expects inflation in the country to return to the 3% target only in 2028, due to persistent pressure from international energy and food prices. Speaking on Thursday, Kganyago warned that geopolitical uncertainty and risks of food supply disruptions could continue to weigh on prices.

In an interview with Reuters on the sidelines of the annual meetings of the International Monetary Fund (IMF) and World Bank in Bangkok, Thailand, Kganyago said inflation is expected to average 4.4% this year. His projections point to a decline to within the central bank's target range in 2027, before reaching 3% in 2028.

This outlook could prompt the central bank to maintain a restrictive monetary policy stance, deploying interest rates as a tool to contain price increases. In September, the institution raised its benchmark rate by 25 basis points to 7.25%, following a hold in July.

Among the principal risks to inflation, the governor highlighted geopolitical uncertainty and its effects on oil and fertiliser prices. Kganyago also flagged the potential impact of the El Niño climate phenomenon and possible disruptions to grain shipments through the Black Sea, both of which could affect food supply.

"So far, measures of core inflation point to a rise in inflation, and that is concerning," Kganyago said. Core inflation is used to assess more persistent price trends by stripping out the most volatile components.

The latest data show that headline inflation in South Africa rose to 4.4% year-on-year in August, driven primarily by higher costs in housing and utilities, transport, insurance, and financial services.

September's rate increase was approved unanimously by the Monetary Policy Committee, following the pause in July. The next policy decision is scheduled for November. Kganyago declined to signal further increases, saying only that the current rate is "moderately restrictive" and that decisions would be taken "meeting by meeting".

Despite inflationary pressures, the stability of the rand has helped offset some of the risks. The South African currency has remained broadly unchanged this year, even as the US dollar has strengthened. "In the past, when oil prices rose, we also had currency depreciation. It has been quite stable this year, but that is no reason for complacency," the governor said, also pointing to fiscal consolidation and an appropriate monetary policy as supporting factors for exchange rate stability.

Source: Diário Económico
Original article: https://www.diarioeconomico.co.mz/?p=552761