South Africa

South Africa Monetary Policy September 2023

South Africa: SARB holds fire once again in September

At its 19–21 September 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 July’s hold, had largely been priced in by markets. That said, the decision was not unanimous: Two of the five committee members preferred a 25 basis point hike.

Inflation ticked up in August—in line with the SARB’s expectations—but remained within the 3.0–6.0% target band. Moreover, headline inflation forecasts for 2023 were downwardly revised to 5.9%, and 2025 expectations were unchanged at the mid-point of the target range, giving room for a hold. That said, expectations for 2024 were upwardly revised to 5.1%, and the Bank stated that inflationary risks are skewed to the upside amid deteriorating public finances and a tighter oil market. This motivated two members of the committee to vote for a rate increase.

Regarding activity, the SARB upgraded its 2023 GDP growth forecasts once again; it has now penciled in a 0.7% expansion, up from the previously estimated 0.4%.

Concerning future policy moves, the SARB did not provide explicit forward guidance. Still, it stated that it stands ready to resume policy tightening if the upside risks to the inflation outlook materialize. Moreover, it affirmed its commitment to anchor inflation expectations at 4.5%—the mid-point of the target band. Virtually all of our panelists see the repo rate ending the year at its current level, with others having penciled in 25–50 basis points of further increases before the end of 2023. Our panelists expect the monetary policy loosening cycle to start in H1 2024.

The last scheduled meeting of 2023 is set for 21–23 November.

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