SARB Governor says it's too early to determine full impact of Middle East conflict

The South African Reserve Bank (SARB) Governor Lesetja Kganyago said it is still too early to determine the full impact of escalating geopolitical tensions in the Middle East.

He has warned that risks of secondary effects on inflation continue to weigh on the country's economy.

Kganyago said this could force the bank to keep inflation anchored at its 3% target.

He was speaking at the first Monetary Policy Forum of the year on Tuesday night.

“We have learnt our lesson from the previous shock of 2002. It was a costly macroeconomic lesson.”

Kganyago said that despite current global shocks, the bank will not tinker its inflation target to deal with current shocks.

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This comes as central banks seek to find ways to deal with the impact of the Middle East conflict while keeping a hold on prices.

“The inflation target is 3%, and it remains 3%.”

He said the bank cannot wait before inflation is broad-based in the economy before acting.

Meanwhile, the acting head of economic research at the central bank, Theo Janse van Rensburg, said there are renewed concerns about global stagflation.

He said the trajectory of monetary policy has become increasingly uncertain amid the ongoing conflict.

“The impact is still uncertain as the conflict is evolving.”

He said markets are now anticipating central banks to hike interest rates in response.

FOOD PRICE INFLATION LIKELY TO RISE

The SARB said multiple pressures could push food inflation higher as fertiliser and diesel costs and the impact of foot-and-mouth disease put a strain on food prices.

It added that weather-related risks, including the possibility of a strong El Niño effect, may further disrupt agricultural output.

On Wednesday, Statistics South Africa will release the latest inflation numbers, which are expected to show a moderate uptick in food inflation.

Janse van Rensburg said the start of the conflict in the Middle East has sharply increased oil prices.

This, together with increased fertiliser prices, has seen global food prices rise for a second consecutive month in March, since September last year.

“To plant and to harvest, you need a lot of fuel. That’s going to raise the cost of food production, but also fertilisers are going to be more expensive, and because of that, we’re likely to see food prices rising going forward.”