South African Reserve Bank Governor Lesetja Kganyago said inflation expectations have risen above the central bank’s 3% target, justifying the May interest-rate increase and signalling further tightening may be needed when policymakers meet later this month.
The central bank raised rates in May for the first time in three years, lifting them by 25 basis points to 7% to prevent an oil shock caused by the Iran war from spilling into lasting inflation.
“The inflation expectations have risen, they are above our target and that is the concern, and that is what we should actually be responding to,” Kganyago said in an interview with Francine Lacqua on Bloomberg Television on Wednesday.
He emphasised that bringing expectations back to target was the priority, after a recent reading of more than 4%, which showed the central bank’s decision to raise rates in May “was a correct one.” He declined to comment on what policymakers might decide at their next meeting.
“What the call will be in July we will see when we get there,” he said. The monetary policy committee will announce its next rate decision on July 23. Bets in interest-rate futures markets show investors expect them to hike again.
