INFLATION SET TO BE ELEVATED IN 2ND HALF OF 2024

MBABANE – Despite falling for the first and second quarter of the year, inflation levels are set to go higher in the last half of the year, due to the recent tariff hikes.

The impact of the increased water and electricity tariffs, among other things, are set to be felt during the last two quarters of the current financial year. Headline consumer inflation has been on the decline in the first quarter of 2024, dropping to 4.1 per cent in March, from 4.3 per cent in February and 4.5 per cent in January. The Central Bank of Eswatini (CBE) Director Research, Sikhumbuzo Dlamini, explained that the reasons for the increase in the inflation rates would be caused by the said increase in prices for commodities like water, electricity and rentals. Dlamini was responding to questions from the media during the bank’s officials meeting with the media themed ‘the Tea and Coffee with the Governor,’ held yesterday at the MTN Golf Course in Ezulwini. He stated that there were also some food commodities, whose prices were also set to increase towards the end of the financial year. Dlamini stated that overall inflation risks were, projected to remain where they were and for them as the central bank, it was a comfortable range closer to the mid-point of 3-7 per cent.

Inflation

When responding to questions about the expectations of the interest rate, Dlamini said the country would be influenced by what South Africa would do and Eswatini would follow suit.
It was noted that annual headline inflation averaged 4.7 per cent for the financial year 2023/24, down from 5.3 per cent for the previous financial year. It averaged 5.0 per cent for the calendar year 2024 from 4.8 per cent in the previous calendar year. The CBE Governor, Dr Phil Mnisi, said the bank has pursued a restrictive monetary policy stance in 2023. The discount rate was increased by a cumulative 100 basis points (bps). The bank first hiked the discount rate by 25bps in January 2023 to 6.75 per cent, which was followed by a hike of 50bps in March 2023 to 7.25 per cent. Further, the CBE effected another increase of 50bps in May 2023 to 7.75 per cent, in line with the tightening regional and global monetary conditions.

In July 2023, the bank adopted an easing stance and cut the discount rate by 25bps to 7.50 per cent, a stance which it maintained for the remainder of the year and the first three months of the year 2024. The governor said when deciding its policy stance, the CBE remained cognisant of the need to strike a balance between anchoring inflation expectations, curbing capital flight and supporting domestic economic growth. Mnisi further explained that monetary policy formulation was, to a large extent, influenced by the country’s membership to the Common Monetary Area (CMA). He said to influence monetary conditions in the country and achieve its mandate, the CBE uses the following tools:
* Discount rate (which happens to be the major one);
* Reserve requirement;
* Liquidity requirement; and
* Open market operations.

In addition, the governor highlighted on the country’s reserves management. He stated that the reserves’ import cover declined from 2.5 months at end of March 2023 to 2.3 months at end of March 2024, with 2.6 months average for the 2023/24 financial year. He highlighted that as of April 18, 2024, reserves stood at E10.8 billion, equivalent to 3.2 months import cover.
The import cover was above the international benchmark of 3.0 months, but below the CMA and CBE targets of 4.0 months as well as the SADC macroeconomic convergence target of 6.0 months. He stated that the bank continues to explore opportunities to build reserves through:
* Accumulation of foreign currency export proceeds from local commercial banks;
* Pushing for more diverse trading products to capture all export flows; and
* Implementing an optimised portfolio for Special Drawing Rights holdings, among other initiatives.

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