South Africa Monetary Policy July 2018

South Africa

South Africa: SARB holds rates in July

July 19, 2018

At its three-day meeting ending 19 July, the Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) kept the repurchase rate unchanged at 6.50%. The decision was widely expected by analysts.

Although risks to inflation have remained tilted to the upside in recent months, price pressures have undershot expectations as the emerging-market selloff has not—thus far—translated into runaway inflation. That said, despite the mild impact of this year’s VAT hike, officials still expect inflation to peak near the upper bound of the SARB’s 3.0%–6.0% target. This gave officials space to hold rates in July, a welcome reprieve as domestic growth continued to underperform. In the aftermath of this year’s disappointing first quarter, officials lowered their full-year growth forecast to 1.2%. However, the growth forecast for 2019 was increased marginally to 1.9%.

Officials made clear that a rate hike before the end of the year is on the table in the event that the rand’s freefall further stokes inflation. Nevertheless, their hawkishness comes amid sluggish growth prospects. Official forecasts now put average inflation this year at 5.6%. This is up from May’s 5.2%, translating into five implied 25-point hikes by the end of 2020, rather than four as previously forecast. As it stands, most FocusEconomics panelists are reluctant to accept the MPC’s hawkishness; instead, most see officials standing pat through year-end in hopes of stirring stronger growth.

Sonja Keller, economist at JPMorgan, argues that a rate hike could be avoided later this year if inflationary pressures are contained. She adds:

“We believe inflation will rise less than projected by the SARB and this should mitigate risks to the SARB's inflation outlook in the event of further currency weakness. [That said,] the MPC’s strong emphasis on the inflation target midpoint, as well as relatively little weight attached to the sizeable downward revision in GDP growth, leaves us with the view that the bar for a one-off, early hike is not high. Such a move would unwind the cut earlier this year and buy some breathing space (and importantly time) before embarking on policy tightening that risks presenting a further drag on the domestic economy.”

The MPC’s next meeting will be held on 18–20 September.

FocusEconomics panelists participating in the Consensus Forecast see the repurchase rate ending this year at 6.50% and next year at 6.64%.


Author:, Economist

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South Africa Monetary Policy Chart


South Africa Monetary Policy July 2018

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


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