Kganyago Warns South African Rate Cut Is No Sure Thing

(Bloomberg) -- South African Reserve Bank Governor Lesetja Kganyago said it’s important to reduce consumer-price expectations, signaling that last month’s drop in the inflation rate to a seven-year low is unlikely to prompt easier monetary policy.

“We would prefer that inflation expectations are closer to 4.5 percent,” Kganyago said in an interview with Bloomberg Television in Washington. “That will build a cushion for South Africa because there are risks on the horizon.”

The bank’s inflation forecast for the next 18 to 24 months is about 5 percent, “not quite where would like it to be but within our target band,” he said. The central bank shoots for inflation of 3 percent to 6 percent.

Policy makers in Africa’s most-industrialized nation are overseeing a pickup in economic growth and a slowdown in price increases, with the annual inflation rate falling to 3.8 percent in March.

That combination may soon come to an end as price gains are expected to accelerate, Kganyago said. According to a model used by monetary policy makers, the gap between actual and potential economic output is quickly closing, he said, adding that’s not good for the inflation outlook.

The Monetary Policy Committee last month cut the repurchase rate by a quarter percentage point to 6.5 percent, the lowest level in two years.

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