South African Reserve Bank (SARB) governor Lesetja Kganyago says declining global oil prices have significantly eased inflationary pressures in South Africa, pushing consumer inflation to its lowest level in nearly five years and offering some relief amid currency depreciation.
Speaking on the sidelines of the International Monetary Fund (IMF) and World Bank Spring Meetings in Washington, Kganyago acknowledged that while the South African rand has weakened, lower oil prices have had a stronger deflationary effect.
“We still think that the next print might still have a 2-handle to it, but the environment is uncertain,” he said, referring to the likelihood of inflation remaining below 3%.
Divided on interest rate cut – or not
South Africa’s inflation rate fell to 2.7% in March, down from 3.2% in February, marking the lowest level since June 2020.
This easing has fueled speculation ahead of the SARB’s next policy meeting on May 29, where economists remain divided on whether interest rates will be cut or held steady.
The central bank’s key interest rate currently stands at 7.5%, following three consecutive 25 basis point cuts.
While inflation is cooling, the broader economic outlook remains fragile.
The IMF this week cut its growth forecast for South Africa to 1%, down from 1.5%, citing growing uncertainty, protectionist trade policies, and slowing global growth.
SARB also lowered its 2025 growth forecast to 1.7% from 1.8% and revised its inflation forecast down to 3.6% from 3.9%, reflecting concern over weak demand and strained supply chains.
Kganyago cautioned that despite the recent disinflationary trend, global instability and trade disruptions- especially related to US President Donald Trump’s tariffs – are contributing to economic unpredictability.
“Confidence about global economic developments has eroded since October,” he warned, adding that such uncertainty may result in “interest rates remaining higher for longer” as the Reserve Bank maintains a neutral policy stance.
The Reserve Bank’s next move is expected to be closely watched by investors and analysts, with inflation nearing the lower end of the SARB’s 3-6% target range and growth challenges continuing to mount.
At the time of publishing the brent crude oil price is $66.77 a barrel.
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