Trade and tax policies pose inflation risks: Reserve Bank’s Lesetja Kganyago

Global trade tensions and a potential value-added tax hike could derail two years of slowing inflation, Reserve Bank governor Lesetja Kganyago said on Tuesday.

Speaking on the sidelines of a meeting of G20 finance officials in Cape Town, Kganyago said uncertain trade conditions and retaliatory tariffs could impact South Africa by tightening global financing conditions and affecting its exports.

SA's G20 presidency has been overshadowed by the prospect of a global trade war since US President Donald Trump's return to the White House last month.

Japan's finance minister has pulled out of this week's G20 finance meeting to focus on trying to pass next year's budget, while US Treasury secretary Scott Bessent is staying away amid a spat between Trump's administration and SA.

"One thing looming large is elevated uncertainty by some of the trade measures taken by major economies," Kganyago told Reuters.

"A combination of those could feed into the domestic price formation process and create a challenge for us where you both a slowing global economy and a rising inflation profile at the same time."

Annual consumer inflation rose for the second month in a row in December, reaching 3.0% in, but it remains at the bottom end of the Bank's target band of 3% to 6%.

The Bank began cutting interest rates in September last year and has implemented three 25-basis-point cuts to date. But some analysts believe it may pause its cutting cycle soon due to a deterioration in the global economic backdrop and emerging domestic risks.

Last week the national budget speech was postponed for the first time in the country's post-apartheid history after a last-minute disagreement in the ruling coalition about a proposal to raise VAT by two percentage points to 17%.

Finance minister Enoch Godongwana is expected to present a new budget on March 12 without the VAT increase.

Kganyago called the proposal to raise VAT a "self-inflicted shock", adding if it were implemented the Bank would respond to the second-round effects on inflation.

Reuters