JOHANNESBURG – South African inflation will need to rise above the central bank’s target range over a longer period before the bank considers raising interest rates, its governor was quoted as saying on Thursday.
In an interview with weekly business magazine Financial Mail, Lesetja Kganyago also said he expected the local bond and stock markets to drop as the U.S. economy recovered and interest rates in the world’s biggest economy rose.
The South African Reserve Bank, which holds its third policy meeting of 2015 next week, has said it expects inflation to trend higher in coming months, but only sees a temporary breach of its 3-6 percent target band in the first quarter of 2016.
It has held base interest rates at 5.75 percent since increasing them by 25 basis points last July.
Annual consumer inflation is currently running well within the target range at 4 percent, and most economists expect rates to remain unchanged until at least the latter part of 2015.
“If we see that there are temporary breaches of the inflation target, there is no need for us to respond. If they are sustained, we respond,” Kganyago said.
South Africa’s rand has weakened nearly 3 percent against the dollar this year, dragged down partly by capital flight from emerging markets as investors anticipate higher U.S. rates.
But raising interest rates without establishing crucial fundamentals like adequate energy supply, labour skills and policy certainty would not be enough to attract investment, Kganyago said.
“When we normalise rates, we are doing so because we are dealing with the inflation outlook, not because we are competing for capital,” he said.