South Africa Monetary Policy March 2018

South Africa

South Africa: Improving economic outlook gives Central Bank margin to cut rate in March

March 29, 2018

The Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) slashed the repurchase rate from 6.75% to 6.50% at its three-day meeting that ended on 28 March. The decision, which marks the first rate cut since July 2017, was expected by markets.

The latest monetary decision comes against a backdrop of an improved outlook for both inflation and growth. Inflation reached an almost three-year low of 4.0% in February (January: 4.4%) and remains well within the SARB’s target range of 3.0%–6.0%. Despite a VAT increase from 14.0% to 15.0% on 1 April, the SARB left its inflation forecast for 2018 unchanged at 4.9% as a stronger currency will keep a lid on inflation.

As of 27 March, the currency had appreciated 5.9% terms against the U.S. dollar in year-to-date largely due to political developments at home following the election of Cyril Ramaphosa as ANC’s president on 20 December. The most recent boost to the currency came on 23 March when Moody’s affirmed the country's credit rating at Baa3 and improved its outlook from negative to sable. Moody's decision means that a credit rating downgrade to junk status was avoided and thus prevented a sell-off of South African government bonds. As a result, the SARB revised their GDP forecasts for 2018 up to 1.7% (previously forecast: 1.4%) on improved business and consumer confidence as well as on stronger-than-expected quarter-on-quarter and annual economic growth in Q4.

The Bank's forward guidance was very clear: the MPC will adopt a wait-and-see approach and future rate decisions will depend upon incoming economic data. The MPC commented that downside risks to the economic outlook have subsided ever since their last meeting in January, the Committee recognizes that uncertainty remains high and that the current growth trajectory is fragile. The growth forecast remains constrained by high unemployment and the implementation of "credible structural reforms" is necessary to sustain the recovery in consumer and business confidence, and thus lead to higher investment.

The next policy meeting will be held from the 22–25 May.

Panelists participating in the FocusEconomics Consensus Forecast expect that the repurchase rate will end 2017 at 6.43%. For 2018, our panel expects the repo rate to end the year at 6.00%.


Author: Jean-Philippe Pourcelot, Economist

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South Africa Monetary Policy Chart


South Africa Monetary Policy March 2018

Note: Monetary Policy Rate in %.
Source: South African Reserve Bank (SARB).


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