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South Africa Holds Rates at 15-Year High on Inflation Worry

(Bloomberg) -- South Africa’s central bank kept borrowing costs unchanged at a 15-year high at its final rate-setting meeting before elections in May, as the bank sees inflation returning to the midpoint of its target range later than expected.

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The monetary policy committee maintained the rate at 8.25% for a fifth consecutive meeting, Governor Lesetja Kganyago said at a briefing north of Johannesburg on Wednesday. That matched the estimate of all 18 economists in a Bloomberg survey.

“Given extra inflation pressure, headline now reaches the target midpoint only at the end of 2025, later than previously expected,” Kganyago said. “As a result, the policy rate in our baseline forecast also starts normalizing later.”

The central bank has been battling to return inflation to the midpoint of its target range of 3% to 6%, where it prefers to anchor expectations, for almost three years. The gauge last month quickened to a four-month high of 5.6% because of higher transport costs, utility bills and insurance premiums.

Inflation is expected to settle close to the midpoint of the target range in the fourth quarter of 2025, compared with its January expectation of the third quarter of next year.

“The committee wants to see inflation expectations moderating further, moving closer towards the mid-point before considering cutting the interest rates,” said Arthur Kamp, chief economist at Sanlam Investments. “The trajectory of the inflation forecast remains important. The committee remains data-dependent and still considers the constraints on economic growth to be supply-side.”

The decision to keep borrowing costs at their current level is likely to draw fire from politicians and labor unions as South Africa prepares to hold national elections on May 29. Opinion polls show the ruling African National Congress may lose its majority for the first time since coming to power in 1994.

The rand held steady after the decision, trading 0.4% stronger at 18.9106 by 3:39 p.m. in Johannesburg. The yield on benchmark government debt due in 2035 rose two basis points from Tuesday’s close to 12.26%.

The decision was supported by all five MPC members. The panel first paused in July, after tightening policy by 475 basis points in a rate-hike campaign that began in November 2021 to confront mounting price pressures.

The implied policy rate path of the central bank’s quarterly projection model now shows the repurchase rate at 7.72% by the end of 2024, compared with 7.54% at the previous MPC meeting, and 7.37% by the end of 2025, compared with 7.29% previously.

Wednesday’s MPC meeting was Kganyago’s first since President Cyril Ramaphosa this month reappointed him to another five-year term.

The bank’s critics say it should be doing more to support an economy that’s stagnating and reduce an unemployment rate that’s among the highest in the world. The bank forecasts growth of 1.2% this year, unchanged from its January estimate, 1.4% for 2025, compared with 1.3% previously, and 1.6% in 2026.

The MPC is due to give its next rate decision on May 30, the day after the election.

--With assistance from Simbarashe Gumbo, Rene Vollgraaff and Alister Bull.

(Updates with analyst comment in sixth paragraph, growth forecasts in penultimate paragraph.)

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