SARB leaves repo at 8.25% as Kganyago flags risks from $60bn South Africa infrastructure gap

The South African Reserve Bank (SARB) left its benchmark repo rate unchanged at 8.25% on Thursday following its May Monetary Policy Committee meeting in Pretoria. SARB Governor Lesetja Kganyago said the decision reflected ongoing inflation risks and highlighted concerns over a $60 billion infrastructure gap that could affect economic stability.

The prime lending rate remains at 11.75%, reflecting the central bank’s sustained restrictive stance amid ongoing inflation concerns. SARB Governor Lesetja Kganyago delivered the announcement at a press briefing in Pretoria on Thursday, coinciding with South Africa’s national elections week.

The Monetary Policy Committee (MPC) unanimously voted to keep the repo rate at 8.25% during its May 2024 meeting, marking the sixth or seventh consecutive time the benchmark rate has been held at this 15-year high, according to the South African Reserve Bank (SARB).

Inflation in South Africa showed a slight easing in April 2024, with headline consumer price inflation registering 5.2%, down from 5.3% in March, but it remains above the SARB’s 4.5% midpoint target within the 3–6% inflation band, officials said. The MPC maintained its 2024 average inflation forecast at 5.1% and revised the 2025 forecast marginally downward to 4.5% from 4.6%, signaling expectations for inflation to return to target levels sooner than previously anticipated. Governor Kganyago noted that inflation is expected to stabilise at the 4.5% midpoint in the second quarter of 2025, an improvement from earlier projections that had anticipated this only by the end of 2025.

Despite the moderation in headline inflation, the MPC cited persistent upside risks, including elevated inflation expectations and pressures from administered prices such as electricity and water tariffs. The national energy regulator’s approved electricity tariff increases and rising municipal water charges were highlighted as significant contributors to inflationary pressures, according to SARB communications. Load shedding and power supply instability have continued to impose costs on businesses and households, which the central bank views as both a drag on growth and a factor that can push prices higher as firms pass on increased operating expenses.

The SARB’s decision to maintain the repo rate also reflects concerns over South Africa’s substantial infrastructure deficit, estimated by analysts at around $60 billion, which Governor Kganyago has repeatedly underscored as a structural constraint on economic growth and a source of macro-financial risk. Chronic underinvestment in sectors such as transport, logistics, and energy infrastructure has diminished the economy’s productive capacity, contributing to sustained supply-side inflationary pressures. The central bank has emphasized that monetary policy cannot resolve these structural challenges but must respond to the inflationary effects they generate, necessitating a relatively high policy rate until supply-side risks are better managed.

Fiscal risks were also cited as factors influencing the MPC’s decision. Elevated public debt levels, contingent liabilities from state-owned enterprises, and pressures from infrastructure and social spending create vulnerabilities that could trigger exchange-rate volatility, potentially leading to imported inflation. The SARB’s scenario analysis incorporates the possibility that adverse fiscal or infrastructure developments could weaken the rand, thereby increasing fuel and imported goods prices and delaying inflation’s return to target.

The SARB maintained its real GDP growth projections at 1.2% for 2024, 1.4% for 2025, and 1.6% for 2026, reflecting a weak but positive growth trajectory amid tight financial conditions. The repo and prime rates, at their highest levels since the global financial crisis, have raised borrowing costs across the economy, impacting mortgage, vehicle finance, and business loan pricing. Market observers note that South African 10-year government bond yields have been sensitive to MPC decisions, with expectations of future rate cuts influencing yield movements and the rand’s exchange rate.

Market reaction to the May 30, 2024, decision was in line with expectations, reinforcing views that the SARB is near or at the peak of its tightening cycle, according to Trading Economics. Analysts have observed that any dovish shifts in MPC language or dissent in favor of rate cuts tend to prompt declines in bond yields and intraday appreciation of the rand. Forward-rate agreements and swap curves have at times priced in a 25-basis-point cut within the next one to two MPC meetings, contingent on continued inflation moderation and the absence of major fiscal or infrastructure shocks. However, SARB guidance stresses data dependency, particularly on inflation developments, inflation expectations, administered price trends, and exchange-rate movements.

The SARB began its rate-hiking cycle in November 2021, implementing ten consecutive increases that raised the repo rate to 8.25% by May 2023. The May 25, 2023, 50-basis-point hike marked the highest policy rate level since the global financial crisis and was aimed at anchoring inflation expectations around the target midpoint. Since reaching this peak, the central bank has maintained rates to assess the impact on growth and inflation dynamics. The MPC has indicated that once inflation is firmly converging to the midpoint and risks related to infrastructure, administered prices, and the exchange rate are contained, it could begin a gradual easing cycle. International coverage notes that when the SARB eventually lowers the repo rate from 8.25%, it will likely be framed as the first cut following a prolonged hold, enabled by easing inflation, a stronger rand, and improved electricity supply conditions.