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South African Reserve Bank (SARB) Governor Lesetja Kganyago has cautioned that rising global trade tensions and signs of deflation in China are introducing new uncertainties into the country’s inflation outlook, ahead of the central bank’s key interest rate decision on July 31.
Speaking on the sidelines of a G20 meeting near Durban, Kganyago highlighted the potential inflationary impact of renewed U.S. tariff threats and the disinflationary pressures from China’s slowing economy.
“The risk with tariffs is that they could dampen global economic activity,” Kganyago explained. “When tariffs are imposed, they typically raise domestic prices in the country implementing them. But if retaliation follows, the world could face a generalised rise in prices.”
U.S. President Donald Trump has renewed his threat to impose broad tariffs by August 1 if bilateral trade deals are not secured. The U.S. remains one of South Africa’s largest trading partners, second only to China.
In contrast, Kganyago noted that China appears to be entering a deflationary phase, which could have significant implications for global trade.
“China is essentially the world’s factory,” he said. “If it is exporting deflation or disinflation, that could offset the inflationary pressures caused by global tariffs.”
He emphasized that these opposing dynamics—tariff-driven inflation and China’s deflationary drag—are making traditional economic models harder to rely on.
“Economic relationships we once depended on to anticipate outcomes are shifting in unexpected ways, adding to global uncertainty,” he remarked.
Implications for Monetary Policy
The SARB’s Monetary Policy Committee (MPC) is facing a divided economic outlook ahead of its rate-setting meeting. While inflation has remained at or below the lower end of the central bank’s 3%–6% target range for eight consecutive months, analysts are split on whether the central bank will continue easing or pause.
The MPC last cut its benchmark interest rate by 25 basis points to 7.25% in May, citing subdued inflationary pressures.
Some economists argue that continued disinflation supports further rate cuts, while others believe global volatility and trade-related risks warrant a cautious stance.
Kganyago further warned that U.S. tariff implementation could particularly harm South Africa’s agriculture and automotive sectors, both heavily dependent on trade, potentially dragging down broader economic activity.
As global economic currents shift and geopolitical tensions mount, the SARB’s next move will likely hinge on balancing domestic economic needs with emerging international headwinds.
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