Central Bank to Maintain Restrictive Monetary Policy Stance

By Phiwa Sikhondze

In its latest Monetary Policy Statement, the Central Bank of Eswatini (CBE) has announced that it will maintain its restrictive monetary policy stance in the short to medium term, to curb persistent inflation risks.

This decision comes despite the Bank’s recent downward revision of inflation forecasts, reflecting a cautious approach amid persistent economic uncertainties and mixed inflationary pressures.

The Bank has revised its annual average inflation forecasts for the next few years, citing lower-than-expected inflation in South Africa as a significant factor.

The updated projections are 4.50% for 2024, down from 4.91%; 5.13% for 2025, down from 5.21%; and 4.92% for 2026, down from 5.37%. While the lower South African inflation outlook has muted short-term inflation pressures, domestic factors such as higher crude oil prices and a weaker exchange rate continue to pose risks.

However, these are counterbalanced by a favourable domestic food inflation outlook and expectations of moderating oil prices and exchange rate appreciation in the medium term.

The Bank’s decision to maintain a restrictive policy stance is influenced by several inflationary and deflationary pressures. Negative risks include adverse weather conditions in the Southern African region, specifically extreme heat during the first quarter of 2024, which has negatively impacted food production, potentially leading to higher food prices.

Additionally, ongoing conflicts in the Middle East are causing trade disruptions and oil market volatility, and an increase in administered prices is adding to inflationary pressures.

Conversely, positive influences on the inflation outlook include continued global disinflation due to easing international food prices and the lower inflation environment in South Africa.

The Central Bank of Eswatini’s decision to maintain a restrictive monetary policy highlights its commitment to managing inflation risks and ensuring economic stability. While the inflation outlook has improved, significant risks remain, necessitating a vigilant and cautious approach.

The resilience of the banking sector, supported by stringent regulatory measures, underscores the overall stability of the financial system during this period of monetary tightening.

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