South Africa doesn't need to follow the Federal Reserve's interest rate moves, according to economist Ebrahim Kganyago

Key Highlights :

1. The Fed affects us because their actions tighten global financial conditions, and that in the main leads to a realignment of exchange rates, including the South African rand. Depending on what has happened to the movement in the rand — which feeds through into inflation — that is our reaction function.

2. The Reserve Bank's increasingly hawkish stance in March suggests Kganyago is reluctant to pivot away from tightening even as the country's economic growth prospects deteriorate.

3. Lowering the inflation target before next year's election, which opinion polls show the ANC risks losing its national majority, is likely to be politically unpopular.

The South Africa Reserve Bank (SARB) has recently reaffirmed its independence in monetary policy decisions. In a speech at the SARB's annual conference in Cape Town, Governor Lesetja Kganyago stated that the bank has the freedom to adjust monetary policy without having to follow the Federal Reserve's interest-rate hikes. This announcement comes amid concerns about the impact of rising interest rates on the South African economy.

According to Kganyago, the SARB's monetary policy is aimed at achieving price stability and sustainable economic growth. The bank will continue to focus on achieving the inflation target of 2% and on monitoring the economy closely. This means that the SARB's monetary policy decisions are based on the country's economic conditions and inflation outlook, rather than being influenced by external factors such as the Federal Reserve's interest-rate hikes.

The SARB's monetary policy is independent of the government, which means that it is not subject to political interference. This is important for ensuring that monetary policy decisions are made in the best interests of the country's economy, rather than being influenced by short-term political considerations.

One of the main tools that the SARB uses to control inflation is its benchmark cash reserve ratio (CRR). This is the main interest rate used to control inflation in South Africa. The SARB has been gradually increasing the CRR from 6.25% to 7.5% over the past year in an effort to bolster the country's economy.

The SARB's decision to raise interest rates is aimed at curbing inflationary pressures in the economy. Higher interest rates make it more expensive for people to borrow money, which can reduce consumer spending and slow down inflation. However, higher interest rates can also have a negative impact on economic growth, as businesses and consumers may be less likely to invest or spend money.

Despite concerns about the impact of rising interest rates on the economy, Kganyago has emphasized that the SARB's monetary policy decisions are aimed at achieving sustainable economic growth in the long term. This means that the bank is taking a measured approach to raising interest rates, and is closely monitoring economic conditions to ensure that its policies are having the desired impact.

Overall, the SARB's independence in monetary policy decisions is an important factor in ensuring that the South African economy remains stable and resilient in the face of external shocks. By focusing on achieving price stability and sustainable economic growth, the SARB is playing a key role in promoting long-term economic prosperity for the country.

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