South Africa

South Africa Monetary Policy July 2023

South Africa: SARB holds fire in July but warns tightening cycle is not over

At its 18–20 July meeting, the Monetary Policy Committee of the South African Reserve Bank (SARB) maintained the repurchase rate unchanged at 8.25%. The move, which came on the heels of May’s 50 basis point increase, met market analysts’ expectations. That said, the decision was not unanimous: Two of the five committee members voted for a 25 basis point increase.

The hold was driven by June’s headline inflation rate falling back within the SARB’s 3.0–6.0% target band for the first time since April 2022. Moreover, the SARB downgraded headline inflation forecasts to 6.0% and 5.0% for 2023 and 2024, respectively. Consequently, average headline inflation is set to remain within the SARB’s target band in H2 2023, likely providing the SARB with some room to hold rates steady. That said, the Bank does not expect inflation to recede to the 4.5% midpoint of the target band until Q3 2025.

With regards to activity, the SARB has upgraded its 2023 GDP growth forecast once again; it has now penciled in a 0.4% expansion, up from the previous 0.3% estimate amid a less severe power-supply crisis.

Concerning future policy moves, the SARB assessed that risks to the inflationary outlook remained skewed to the upside. Consequently, it hinted that the repurchase rate has not yet peaked, and more hikes are likely to be delivered this year as it “aims to anchor inflation expectations more firmly around the midpoint of the target band and to increase confidence of attaining the inflation target sustainably over time”.

Most panelists see the rate on hold until end-2023, while some have penciled in one last 25 basis point increase this year.

The next monetary policy meeting is scheduled for 19–21 September.

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