The Reserve Bank governor yesterday poured cold water on hopes of an interest rate cut this month.
SARB governor Lesetja Kganyago says the country has to sustain a low inflation for a period of time in order for the bank to justify further interest rate cuts.
His comment comes as South Africans wait with bated breath for the Monetary Policy Committee’s (MPC) interest rate decision in about two weeks time, on September 19.
The repo rate is currently at a 14-year high of 8.25% and the prime lending rate is at 11.75%.
Kganyago told SAfm radio on Monday night that South Africa needs not just lower inflation, but sustained low inflation.
“It was this time last year that we had an inflation reading that was at 4.7%, and there was excitement around it,” he noted.
“Lower inflation is always welcome, but what was needed to be seen was sustained low inflation, and indeed, the South African Reserve Bank was proved to have been correct because a few months later, inflation crept up.”
The MPC will only be comfortable to lower the interest rate when inflation eases sustainably toward 4.5%, he added.
The Public Servants Association (PSA) called for the Reserve Bank to cut interest rates following the drop in inflation last month.
The PSA, which represents more than 245,000 public servants, said a decrease would offer relief to consumers, as it is expected to lower transport and food costs.
The PSA said that despite the positive shift in inflation, the interest rate currently stands at its highest level.
The PSA urged the MPC to consider reducing the interest rate by at least 25 basis points.
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