South Africa's central bank chief says trade and tax policies pose inflation risks

Lesetja Kanyago said on the sidelines of a meeting of G20 finance officials in Cape Town that uncertain trade conditions and retaliatory tariffs could lead to tighter global financing conditions and hit South African exports.

Since U.S. President Donald Trump returned to the White House last month, South Africa’s presidency of the G20 has been clouded by the prospect of a global trade war.

Japan’s finance minister pulled out of this week’s G20 fiscal meeting to focus on passing next year’s budget, while U.S. Treasury Secretary Scott Bessent also skipped the meeting amid the Trump administration’s dispute with South Africa.

"The immediate issue is that some of the trade measures taken by major economies have increased uncertainty," Kganyago told Reuters in an interview.

"The combination of these factors is likely to affect the domestic price formation process and create challenges for us as we simultaneously face a slowing global economy and rising inflation," he added.

Annual consumer inflation rose for a second straight month in December to 3.0%, but remained at the bottom end of the South African Reserve Bank's 3%-6% target range.

The central bank began cutting interest rates in September last year and has implemented three 25 basis point cuts so far, but some analysts believe the Fed may soon pause its rate-cutting cycle due to a deteriorating global economic environment and emerging domestic risks.

Last week, South Africa’s national budget was delayed for the first time in its post-apartheid history after the ruling coalition split at the last minute over a proposal to increase the value-added tax by 2 percentage points to 17%.

Finance Minister Enoch Godongwana is expected to present a new budget on March 12 without a VAT increase. Kanyago called the proposal to raise VAT a "self-inflicted shock," adding that if implemented the central bank would respond to second-round effects on inflation.