By Lwazi Dlamini
The Central Bank of Eswatini (CBE) has forecasted that the inflation will remain moderate in the short to medium term at 4.91 per cent for 2024, 5.21 per cent for 2025 and 4.92 per cent for 2026.
The CBE Governor Dr. Phil Mnisi, delivering his Annual Monetary Policy Statement at Royal Villas on Thursday morning, said for the outlook, elevated oil prices,
A weaker exchange rate, administered prices and geopolitical tensions, which may escalate, and cause supply chain disruptions could raise inflationary pressures.
“The Bank has revised down its short to medium term inflation forecasts. Downside pressures to the short-term inflation outlook are expected to come mainly from the lower South African inflation outlook which remains muted when compared to the previous period.
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While there are inflationary pressures coming mainly from higher crude oil prices and a weaker exchange rate, overall domestic food inflation outlook outweighs the upward pressures.
In the medium term, oil prices are expected to moderate gradually, coupled with an appreciation in the exchange rate,” Mnisi said.
The Governor said in May 2024, the Bank revised down the annual average inflation forecasts to 4.50 % (from 4.91%) for 2024, 5.13% (from 5.21%) for 2025 and 4.92% (from 5.37%) for 2026.
“In the short to medium term, monetary policy is likely to be maintained at the current restrictive level for some time before a gradual easing is considered.
This is in line with the prevailing risks to the inflation outlook,” the Governor stated.
He further stated that negative risks largely emanate from the impact of adverse weather conditions in the Southern African region (extreme heat during the first quarter of 2024) on food production leading to higher food prices, persistent conflict in the Middle East causing trade disruptions and oil market volatility, and the increase in administered prices.
“The positive inflation outlook is largely supported by continued global disinflation arising from easing global international food prices and the lower inflation in South Africa,” Mnisi said.
Mnisi observed that the year 2023 presented a number of challenges at global and regional level which had a spillover effect to the domestic economy.
“Even though inflation moderated at a faster rate than expected last year, risks persisted and therefore monetary authorities kept interest rates steady at restrictive levels.
Domestically, inflation has fairly moderated and the outlook points to a further moderation. However, risks to the outlook persist, and the global environment remains highly fluid,” he said.
The Governor said the Bank will continue to monitor developments at global, regional, and domestic level, and use all the instruments at its disposal, in pursuit of its price and financial stability objective, in order to ensure an environment conducive for sustainable economic growth.
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In his opening statement during the delivery of the Annual Monetary Policy, the Governor said in pursuit of its mandate of formulating and implementing sound monetary policy to ensure price and financial stability, the CBE adopted a restrictive monetary policy stance over the review period.
“Overall, the bank increased the discount rate by 25 basis points over the financial year 2023/24, from 7.25 per cent in April 2023 to 7.5 per cent in March 2024.
The tightening stance was in line with the relatively tightening regional and global monetary conditions as most economies across the globe continued to grapple with inflationary pressures.
which pushed their inflation to levels above their target range, even though inflations were moderated compared to the previous year,” Mnisi said.
