The South African Reserve Bank (Sarb) has warned that the possibility for further rate cuts in emerging economies was now very limited as major central banks across the world were set to adopt a cautious approach on monetary policy amid heightened inflation risks.
This comes as the US decision to impose hefty import tariffs on more than 75 countries shook the markets last week, plunging the global economy to a brink of a potential recession as fears of spiking inflation rose.
Sarb Governor Lesetja Kganyago on Tueday said economic fault lines, stemming from policy shifts and heightened trade tensions, have emerged, adding to pre-existing geopolitical tensions.
Kganyago said these shocks presented new risks to both growth and inflation, and have rendered the global economic outlook more difficult to predict.
“Today when the world economy is in economic turmoil, the confidence regarding global economic developments we projected in October has largely evaporated. This has been displaced by heightened economic uncertainty due to trade tensions,” Kganyago said.
“Here at home we have seen significant progress on disinflation since last October, along with notable headway on the energy and logistics front. With inflation and inflation expectations better behaved, we lowered borrowing costs and this will support economic activity.
“However, risks to domestic inflation and growth have risen markedly since the start of the year. The South African Reserve Bank remains steadfast in its commitment to protecting the purchasing power of the rand.”
Kganyago said modest further cuts by major central banks were, however, still projected for this year, but policy rates will likely remain higher for longer. With global interest rates high and risks elevated, he said the possibility for further rate cuts in emerging economies is limited as interest rate differentials narrows.
“We will remain cautious as we navigate a highly volatile global macroeconomic environment. Here is one fact we know to be true: South Africans and indeed consumers the world over hate inflation. Importantly, high inflation is anti-poor. We at the South African Reserve Bank take our responsibility to protect the poor seriously.
“We however contend that while inflation has come down appreciably, our relatively high target is inconsistent. Price stability is achieved when households and firms stop paying much attention to inflation when making consumption on investment decisions. We are yet to get there.”
Kganyago was speaking during the release of the April 2025 Monetary Policy Review, which covers domestic and international developments affecting monetary policy.
It was launched at the Monetary Policy Forum, where members of the public also engaged with Monetary Policy Committee members.
The Review showed that inflation in South Africa was currently contained, and the outlook appears moderate and in line with the 4.5% target midpoint.
However, the uncertainty around this outlook has risen markedly since the beginning of the year due to global and domestic risks, particularly heightened geopolitical and trade tensions as well as the proposed VAT increases.
It said the VAT impacts were difficult to quantify in advance as they depended on an unknown pass-through rate and were staggered, which raises the risk of second-round effects.
To ensure growth is more robust and resilient to shocks, the Sarb said domestic investment needed to rise significantly to rebalance the economy and complement household consumption spending.
It said investment and output growth can be boosted further by adopting policy measures that permanently lower inflation risk and strengthen competitiveness.
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