South Africa has less flexibility on interest rates because the outlook for inflation has deteriorated, a deputy central bank governor said.
Daniel Mminele said several trends are stoking inflation, including this year’s increase in oil prices, a weakening in the rand and the likelihood the state power company will raise tariffs.
“Earlier this year we felt that short-term dynamics allowed for a pause on the interest rate normalization path,” Mminele told a JPMorgan investor seminar on Sunday. “There is now reduced flexibility in this regard.”
As a result, the central bank’s monetary committee will have to “carefully assess when it will be appropriate to adjust the policy rate further.”
A copy of the speech was posted on the South African Reserve Bank’s website.
Already in late March, Governor Lesetja Kganyago ruled out cutting borrowing costs and said there was no more scope to pause “in the cycle of interest-rate normalization.” The bank kept the benchmark interest rate unchanged at 5.75 percent.
The central bank last month raised its inflation forecast for this year to an average 4.8 percent from 3.8 percent.
South Africa has been hit by a drought that has slashed its corn crop, the country’s biggest staple. Prices are also under from pressure from the rising costs of maintaining power plants. Eskom Holdings SOC Ltd., the state-owned utility, is seeking to raise electricity tariffs by 25 percent.
The rand has weakened 4.1 percent to 12.0675 against the dollar this year.