Explainer: How the Reserve Bank decides on interest rates

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Movements in headline inflation are a key indicator, but decisions are also influenced by central banks around the world, especially the US Federal Reserve

Lost your password? Please enter your username or email address. You will receive a link to create a new password via email.Lost your password? Please enter your username or email address. You will receive a link to create a new password via email.The South African Reserve Bank’s monetary policy committee will meet this week to decide on the country’s interest rate.

“The bar for a rate cut has not been cleared yet,” Nedbank chief economist Nicky Weimar said in a MPC The Fed has a dual mandate: to achieve price stability and maximum employment. It targets a 2% inflation rate to achieve this mandate.also targets inflation to achieve price stability. But, given their effect on the currency — and inflation — the Reserve Bank also closely follows the Fed’s policy decisions.

US inflation moderated to 3.4% year-on-year in April, from 3.5% in March — bringing the rate closer towards the Fed’s target. This, Lings said, will raise expectations of an interest rate cut in the US later this year. Despite South Africa’s headline inflation rate being within the Reserve Bank’s 3% to 6% target range, Weimar pointed out that sticky global inflation and higher-for-longer US interest rates are seen as upside risks to the domestic inflation outlook.

 

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