Lesetja Kganyago, Governor of the South African Reserve Bank, has expressed concerns that US protectionist policies could hinder future interest rate cuts by central banks globally. This possibility arises if these policies trigger inflationary pressures. However, Kganyago acknowledged the current uncertainty surrounding the economic outlook due to numerous interconnected factors.
The recent inauguration of the new US president has seen the announcement of potential tariffs of up to 25% on Mexico and Canada, a move that has raised concerns among global policymakers.
In an interview with Bloomberg TV at the World Economic Forum in Davos, Kganyago emphasized that “To the extent that the measures taken are inflationary, it could slow down the disinflation process that central banks had so steadfastly worked on since the recent period of high inflation.” He further stated that this could “abruptly halt” the current easing of monetary policy observed across the globe, including in the US, the European Union, and South Africa.
Central banks worldwide have been gradually reducing interest rates as inflationary pressures have begun to subside. In line with this trend, the South African Reserve Bank recently implemented its second consecutive 25-basis-point rate cut, bringing the benchmark interest rate to 7.75%.
While further reductions are anticipated, the South African Reserve Bank is expected to maintain a cautious approach, with any future easing likely to be limited in scope. The next policy meeting is scheduled for January 30th, where a decision on the interest rate is expected.
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