Lesetja Kganyago, governor of the South African Reserve Bank, is in a difficult position. With economic growth expected to reach just 0.8% in 2016, the country’s economy is reeling from a potent mix of domestic and external challenges – all while inflation is on the rise. In February, the South African consumer price inflation (CPI) index was at 7%, its highest level in more six years and beyond the central bank’s target range of between 3% and 6%. Faced with this dilemma, the Reserve Bank’s monetary policy committee has opted to increase interest rates twice since the start of the year.
“The South African Reserve Bank maintains that price stability, with the aim of achieving long-term sustainable economic growth, remains its primary mandate,” says Mr Kganyago. “The monetary policy committee is particularly conscious of the potential risks associated with the second-round inflationary effects emanating from so-called short-term supply-side shocks, [including] food and the exchange rate.”