The International Monetary Fund expects at least a dozen countries to seek new loan programs to cope with surging energy prices and supply chain disruptions caused by the Middle East war. It adds that several sub-Saharan African nations are seeking help. Speaking to the media during the IMF and World Bank spring meetings in Washington, IMF Managing Director also warned of deepening supply disruptions from the closure of the Strait of Hormuz, even if the conflict ends quickly. She also urged countries to take measures to reduce their fuel usage. For more on this, let's now cross live to SABC News correspondent Sherwin Bryce-Pease, who has been keeping an eye on the spring meetings in Washington. And he has with him the Reserve Bank Governor Lesetja Kganyago. And Sherwin, good evening to you. Over to you.
Mbali, thank you very much indeed. And we welcome you back to IMF headquarters here in Washington, D.C. The backdrop of our interview is the atrium in the main building here. But more importantly, sitting alongside me is South Africa's Reserve Bank Governor Lesetja Kganyago, no stranger to SABC television screens. But we are certainly delighted that he's agreed to come back and talk to us. So, Governor, it's good to see you. Thank you very much for your time today.
The war in the Middle East, one of the dominant themes at this year's spring meetings as central bank governors grapple with the inflationary pressures as a direct result of spiking energy prices, spiking fertilizer prices that could of course result in food inflation. And then the requisite responses that might be required, Governor. You said during a panel at the International Institute of Finance this week that the Strait of Hormuz, even if the conflict ends quickly, should be to make sure that the shock becomes transitory rather than becoming persistent. To what extent is that policy response baked in already? Particularly given the announcement today that the Strait of Hormuz is open to all commercial traffic as long as the ceasefire lasts.
Well, firstly, the impact of the war transmits through the oil price. And for us, a higher oil price means higher fuel prices domestically. Fuel is a very important input in the agricultural sector, particularly with respect to diesel. And fuel is also important for the distribution, broader distribution in the economy. So, when that comes, it comes as a shock. And the way in which central banks would respond to a shock like that is that we say let's look through the shock and see whether there is any evidence of other prices rising. If there is evidence of other prices rising, then we have got to... That is what monetary policy responds to. But this time round, the shock is complicated by the other part that you had mentioned, which is the price of fertilizer. You have got rising prices of fertilizer. And fertilizer is very important in field crops. And so we are not dealing just with the oil price shock. You're also dealing with the shock from the fertilizer prices. And that would feed directly into input price inflation. The fortunate thing for South Africa at the moment is that we are out of our planting season. So, if this thing is to be felt, it will be felt later in the year when we are doing the planting. So that is the channel through which this shock transmits.
Does that give you more time to respond in terms of the policy response here or not?
Well, the one word that has been permanent throughout this week in Washington is uncertainty. And so if you are uncertain, you do not know whether you have more time or you do not have more time. And that is why you got to be constantly looking at all the incoming data. And for us, we stated that we have got a forecast, we have got scenarios. And any policy decision that we take will be guided by that outlook, the risks associated with that outlook, and all the incoming data.
Let me quote you. You said this week, 'We are not going to try and be preemptive, but neither can we afford to be complacent and say we've got to wait for the second round of effects to arrive before we actually take any appropriate policy response.' Threading that needle in and of itself is an art form, I imagine, particularly in the context, Governor, of IMF leadership, including Kristalina Georgieva, saying 'Look before you leap.' And wait and see what is the right approach. Does that align with your principles here?
Yes. And you'll soon realize that this thing is more an art than a science. And if we just look back at the previous crisis, 2022 surge, central banks in Latin America were the first ones to start adjusting policy in 2021. And those who start early realize that they do not have to do a lot of adjustment. But there is a very fundamental difference between 2022 and 2026. The fundamental difference for South Africa is that when the inflation surge came in 2022, our inflation rate was above target. This time when this surge comes, we were on target. In 2022, our policy rate was negative in real terms, meaning the repo rate at the time was below inflation. This time round, the SARB policy rate is positive in real terms and is also higher than neutral. So, we got into this shock with a monetary policy stance that was still restrictive. And that cushions us in that way.
I'm glad you mentioned the shocks, right? You referred to 2022. Of course, you've been governor since about 2014, if I'm right. So, you've been through a number of shocks. And the question, you know, Ukraine, COVID, and so forth. And now Iran. The question then becomes, do you learn principles from those experiences or is every game different?
Well, there are certain things that you learn from that. And we have this saying in central banking that your age is determined by how many crises did you go through. And I've gone through quite a bit. Some of which, by the way, date back to when I was in the treasury. There are things that you learn. But every crisis is different. And that is why I was distinguishing between 2022 and 2026 that both were shocks. But at the same time, the initial starting conditions matter.
You know, before February 28th, the rand was powering ahead, right? Improving almost every day to levels not seen in many years. What do you make of the rand's moves in the context of this war? Are they primarily driven by domestic fundamentals? Is this about global risk sentiment or portfolio flows?
Both. And so there are what we will call the push factors for the rand, and there are also the pull factors. And I have to take it just before the shock, because just before the shock, we were having portfolio inflows, and mainly coming through the bond market. Talking to investors, investors were looking for alternative assets to the US dollar. So, many emerging market currencies also gained from that. Those are the global push factors.
