More interest rate hikes are on the way, according to the Reserve Bank

South Africa’s central bank said it will continue to use interest rates to control inflation and responded to calls for its mandate to include explicitly promoting economic growth and job creation by stating that monetary policy already targets those indicators.

The Reserve Bank’s repurchase rate, at 6.25%, remains below long-term levels and in expansionary territory, said Governor Lesetja Kganyago in a speech in Johannesburg on Tuesday.

The consequences of the Fed loosening its grip on inflation and falling behind global peers as rates normalise would be “too costly,” he said.

“The best chance we have with monetary policy to get faster, more job-rich growth is to maintain our focus on price stability with flexible inflation targeting, a proven framework.”

The Reserve Bank’s constitutionally mandated price-stability mandate has long been a source of contention for the ruling African National Congress. With the unemployment rate at 34.5% and the ANC set to hold its five-yearly elective conference next month, where it will also decide on policies, calls to broaden the central bank’s policy focus have resurfaced.

South Africa has an unemployment problem that requires more credible solutions, according to Kganyago. He claims that factors beyond the reach of the central bank’s toolkit limit job creation and growth.

Kganyago, who has been in his position for eight years, is an outspoken supporter of inflation targeting. Under his leadership, the central bank began to manage price growth to be close to the midpoint of its 3% to 6% target range.

“Inflation erodes the buying power of the population,” Kganyago said. “If the authorities do not step in a deal with inflation, we are selling our people short.”

In September, South Africa’s inflation rate fell for the second month in a row to 7.5%. According to central bank projections, it will only return to the 4.5% midpoint of the target range by the fourth quarter of 2024.

“We hear your cries when you say inflation is eroding your income, whether a salary or a grant from government,” Kganyago said. “Erosion of that income by inflation is what the central bank should deal with. But in dealing with your cries, there will be short-term pain, and that comes in the form of medication that is interest rates.”

In a note issued on Monday (31 October), Investec chief economist Annabel Bishop stated that central banks around the world are still focused on inflation, and that South Africa is expected to see a 100bp hike on November 24th.