SARB's Cassim Flags Risks, Says More Inflation Shocks Could Materialise

SARB Deputy Governor Rashad Cassim said at a conference that South Africa could be hit by more inflation shocks, adding that monetary tightening delivered to date is affecting the economy with a lag.

• "Given that the full impact of monetary policy on inflation is not immediate but has a lag effect, we could not immediately bring inflation back to target in 2022. Instead, what we aimed to do was set policy so that inflation would normalise after the initial, deep shock had played out."
• "On current forecasts, we anticipate inflation will be back at the midpoint of our target range towards the end of this year. Similarly, the International Monetary Fund’s (IMF) forecasts, from the most recent World Economic Outlook, have end-of-period inflation for 2023 at 4.5%."
• "One problem is that we could get more shocks. Food inflation has been coming in higher than expected, and it surprised us once again in the latest consumer price index (CPI) release from Statistics South Africa. (...) The exchange rate outlook has also deteriorated recently."
• "If the disinflation story does not play out as expected, then we won’t get real rates where we need them. (...) There are clear risks of adverse developments, which could require further monetary policy action to contain inflation. And so, to conclude, while we hope for the soft landing, we are also prepared for worse outcomes."
• Click here to read the full speech.