Fundi Tshazibana. Picture: Supplied
The South African central bank’s proactive efforts to
contain price growth mean the country has a good chance of getting through the
worst global inflation shock in a generation “without particularly high
inflation or high interest rates,” Deputy Governor Fundi Tshazibana said.
Policy makers began a preemptive hiking cycle in November
and has since lifted the benchmark rate by 200 basis points to 5.5%, unwinding
some of 2020’s pandemic-era stimulus. Its stance has repeatedly drawn criticism
from some politicians and labour unions who’ve urged the central bank to do more
to support cash-strapped South Africans and the domestic economy.
The Reserve Bank has a constitutional mandate to maintain
price stability in the interest of balanced and sustainable economic growth and
it prefers to anchor inflation expectations close to the 4.5% midpoint of its
target range. While the change in the headline consumer-price index breached
the target ceiling for a third-straight month in July, economists, including
Annabel Bishop of Investec Bank, predict the 7.8% outcome is likely to be the
peak of the cycle.
“I hope you have all taken time to appreciate the fact
that South Africa’s inflation has been below the inflation rates of the United
States, the United Kingdom and even Germany, in recent months,” Tshazibana
said in a copy of a speech posted on the central bank’s website on Thursday. “Perhaps
more relevant, we have not seen target misses of the scale experienced by many
of our peers, and unlike those countries, we have not had to raise rates well
into restrictive territory.”
In reading accounts of what central bankers got wrong and
that contributed to the ongoing surge in inflation, “I realise that
despite the criticisms — we at the SARB are sometimes attacked for not being
adventurous — it is clear that when central banks do become adventurous, the
consequences can be even more unpopular,” she said.
In retrospect, South Africa’s central bank probably effected
“about the right amount of stimulus in 2020, and we probably started
withdrawing stimulus at about the right time in late 2021,” Tshazibana
said. While Russia’s war with Ukraine was an unexpected shock, South Africa’s
inflation profile wasn’t “too problematic” before then, she said.
Despite last month’s most aggressive hike in almost two
decades, South Africa’s real interest rate — the differential that makes local
assets attractive to foreign investors — remains deeply negative. The question
of how quickly the Reserve Bank needs to get to positive real rates, and
ultimately a more neutral monetary policy stance, depends on the persistence of
higher inflation, Tshazibana said.
The implied policy rate path of the Reserve Bank’s quarterly
projection model, which the monetary policy committee uses as a guide,
indicates a key rate of 5.61% by year-end and 6.78% at the end of 2024.