Kganyago cuts rates, hints at efforts to target 3% inflation
Kganyago said with inflationary pressures, including tariffs globally, food price inflation has risen while fuel price inflation is falling at a slower rate, with inflation expected to average 3.3% for the rest of the year. The risks to the outlook appeared to be balanced.
'The MPC has decided to reduce the policy rate by 25 basis points to 7% with effect from August 1. The decision was unanimous. At our previous meeting we considered a scenario with a 3% inflation objective. We did this based on analysis that our existing 3% to 6% target is too high and too wide and should be reformed.'
The decision comes a week after Statistics South Africa announced CPI ticked upward slightly from 2.8% to 3%. After announcing the rate cut, Kganyago said the MPC also agreed to zero in on the lowest point of the target band.
He stressed that the inflation target remained at 3% to 6% and the work of the Bank and the National Treasury through the government technical advisory committee investigating a tighter inflation target was continuing.
'The MPC now prefers inflation to settle at 3%. We welcome the recent moderation in inflation expectations and would like to see expectations fall further.
'This would expand policy space and make our framework more robust to shocks. We will use forecasts with a 3% inflation anchor at future meetings. The Bank will also continue working with the National Treasury to complete target reform and achieve permanently low inflation.'
He said the US has initiated trade negotiations with other countries and many countries have not yet secured trade deals with the largest economy in the world. While oil prices were elevated, monetary policy has demonstrated resilience.
The repo rate announcement also comes the day after US Federal Reserve chair Jerome Powell announced the rate in that country will remain the same despite explicit pressure from US President Donald Trump to cut rates.
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