South Africa

South Africa Monetary Policy January 2022

South Africa: SARB delivers second consecutive rate hike in January

At its first meeting of the year on 27 January, the Monetary Policy Committee of the South African Reserve Bank (SARB) voted to increase the repurchase rate by 25 basis points to 4.00% from 3.75%. The decision, which largely met market analysts’ expectations, followed the SARB’s November hike—the first in three years. The vote was once again not unanimous, with one member voting to leave the rate unchanged.

The SARB upgraded its 2022 inflation projection—and downgraded its 2023 forecast—although inflation is still set to remain comfortably within the Bank’s 3.0%–6.0% target band over the forecast period. However, the Bank stated once again that risks to the outlook are skewed to the upside. The SARB noted that some upside risks, such as higher food and fuel prices, have materialized, and additional risks, such as currency volatility and capital flow reversals, have intensified. Meanwhile, the Bank’s growth forecasts for 2022–23 were unchanged from November 2021, and it noted that risks to the medium-term growth outlook were balanced, allowing it to continue gradually tightening conditions.

Regarding future policy moves, in its communiqué the SARB stated that “the implied policy rate path of the Quarterly Projection Model (QPM) indicates gradual normalisation in the first quarter of 2022, and into 2023 and 2024, given the inflation forecast”. It also added that “given the expected trajectory for headline inflation and upside risks, the Committee believes a gradual rise in the repo rate will be sufficient to keep inflation expectations well anchored and moderate the future path of interest rates”. That said, the Bank once again assured that the gradual tightening of conditions will be subject to and flexible to new data and risks, given the volatility and uncertainty surrounding the economy.

Andrew Matheny and Bojosi Morule, analysts at Goldman Sachs, commented:

“The 4-1 vote split among MPC members […] also came as a dovish surprise to analyst expectations for a unanimous decision (with a skew towards some expecting dissenting hawkish votes for a 50bp hike). Nevertheless, given a 3-2 split in favour of a hike in November, the median voter has become more hawkish since. […] We expect a continued gradual tightening of monetary policy with our forecast for 50bp of rate hikes by end-2022. We see risks to our forecast tilted towards more front-loaded tightening.”

The next monetary policy meeting is scheduled for 24 March.

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