South African central bank governor, Lesetja Kganyago, has stated that the country’s disinflation process has commenced, and he expects inflation to average 5% throughout 2024. Speaking during the Reuters Global Markets Forum in Davos on Wednesday, Kganyago expressed concerns about inflation, which remains significant due to both global and domestic risks impacting the economic outlook.
The South African Reserve Bank (SARB) has a targeted inflation range of 3% to 6%, and while annual inflation had been on the rise, November 2023 marked a turning point as it slowed down to 5.5%. This decline can be attributed to cooling fuel prices, despite ongoing concerns about rising food costs.
Kganyago, however, refrained from providing a timeline for when the central bank might initiate interest rate cuts, emphasizing that such decisions would continue to depend on data trends. “We would like to see inflation consistently drop to the 4.5% mark before assessing the necessity of maintaining tight monetary policy,” Kganyago stated.
The South African Reserve Bank is poised to convene its first monetary policy committee meeting in the coming week, where it will reevaluate economic forecasts for the year. South Africa has grappled with near-daily power outages lasting up to 10 hours a day for over a decade, impacting economic growth significantly.
The SARB estimated that these power disruptions had knocked off up to 2 percentage points from the country’s growth in 2023. However, the situation is expected to improve as investments in renewable energy sources are anticipated to alleviate the strain on the power grid.
In addition to power issues, logistical challenges within the ports and rail network, managed by the troubled state-owned operator Transnet, are anticipated to have a bearing on South Africa’s economic growth in 2024. Kganyago pointed out that although it was challenging to quantify, the inefficiency of the rail network in transporting goods was contributing to inflationary pressures.
Furthermore, South Africa is slated to hold its seventh democratic national election this year, and the pressure to increase government spending could exert additional strain on domestic inflation. “There will be a considerable contestation in South Africa, and this could spill over into the labour market, impacting wage negotiations and domestic inflation,” warned Kganyago.
As South Africa navigates these economic challenges, the central bank remains vigilant in its efforts to strike a balance between supporting economic recovery and managing inflation.
