South Africa

South Africa Monetary Policy September 2018

South Africa: SARB argues wait-and-see in September

At its meeting ending 20 September, the Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) kept the repurchase rate unchanged at 6.50%. Although widely expected by analysts, policymakers were split over the decision.

Although officials’ inflation forecasts were revised upward amid the further weakening of the rand in recent weeks, downwardly revised growth projections pushed the MPC to narrowly avoid a rate hike. Risks to inflation have remained tilted to the upside in recent months but, interestingly, price pressures have continued to undershoot expectations as the emerging-market (EM) selloff has not—thus far—translated into runaway inflation. As it stands, inflation is expected to peak just below the upper bound of the SARB’s 3.0%–6.0% target by mid-year 2019, giving officials just enough space to maintain rates in response to the underperforming economy. News that the economy fell into recession in the first half of the year prompted widespread concern among investors in early September, feeding a pronounced selloff of the rand as it navigated a fraught EM landscape.

Policymakers made clear that a rate hike in November is still on the table in the event that the rand’s nosedive stokes inflation. Nevertheless, their hawkishness stands in contrast to sluggish growth prospects. All told, most FocusEconomics panelists discount the MPC’s assurances; instead, most see officials standing pat through year-end in hopes of stirring stronger growth. Analysts aren’t yet sold on next year’s expected tightening, either—a majority of our panel sees only a handful of hikes by end-2019.

The MPC’s next meeting will be held on 20–22 November.

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