(Bloomberg) — South African central bank Governor Lesetja Kganyago warned that US protectionist policies are potentially inflationary and risk derailing future interest-rate cuts, while adding that there are currently too many “moving parts” to be certain about the outlook.
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Donald Trump, who was sworn in as US president on Monday, said he plans to impose previously threatened tariffs of as much as 25% on Mexico and Canada by Feb. 1.
“To the extent that the measures taken are inflationary, it could slow down the disinflation process that the central banks had so steadfastly worked on since the great inflation of 2022,” Kganyago said in an interview with Bloomberg TV at the World Economic Forum in Davos on Tuesday. There is a risk that “the reduction in the restrictiveness of monetary policy that we had seen over the past year, could then be brought to an abrupt halt.”
Central banks including those in the US, the European Union and South Africa began reducing rates last year as inflation started easing.
The South African Reserve Bank’s monetary policy committee cut the benchmark interest rate by 25 basis points for a second straight meeting in November to 7.75% and is expected by economists to do so again on Jan. 30.
Risks to the central bank’s inflation outlook include higher domestic energy prices and a weaker rand. The rand, a bellwether for emerging-market currencies, has depreciated almost 7% against the dollar since Trump won the US election on Nov. 5.
Its weakness has been linked to a global pullback from emerging markets, fueled by US tariff threats and reduced expectations for Federal Reserve rate cuts.
Still, Kganyago said a good crop output after heavy rains may have a dampening effect on food costs going forward, easing price pressures. “We have got to continuously assess the balance of risk and calibrate policy accordingly,” he said.
Annual inflation data scheduled to be released on Wednesday is expected to show it quickened to 3.2% last month from 2.9% in November to average 4.5% in 2024, in line with the MPC’s forecast and at the midpoint of the bank’s target range where it prefers to anchor expectations. Policymakers foresee inflation averaging 4% this year.
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