South Africa

South Africa Monetary Policy September 2021

South Africa: SARB keeps rate unchanged in September meeting

At its 23 September meeting, the Monetary Policy Committee of the South African Reserve Bank (SARB) unanimously voted to leave the repurchase rate unchanged at its record low of 3.50%–where it has been since July last year. The decision marked the seventh consecutive hold and was widely expected by market analysts.

The decision came amid relatively contained inflationary pressures and a continued, albeit fragile, economic recovery. While data shows an improving economic performance in H1, job losses highlight that the recovery is still uneven across sectors, with some showing persistent weakness due to policy uncertainty and electricity shortages. Moreover, the protests that broke out in July are expected to have a long-lasting effect on investor sentiment and job creation—which led the Bank to downwardly revise its 2022–23 economic growth forecasts. Turning to price pressures, inflation is seen remaining largely contained this year and next, while core inflation is projected to increase this year and in 2022–23. That said, volatile oil prices and higher prices for electricity present upside risks to the Bank’s forecasts.

With regard to forward guidance, the Bank maintained its projection of a 25 basis-point hike in the final quarter of the year, and again in each quarter of next year and in 2023. That said, policy will remain highly accommodative in a bid to continue supporting the recovery. However, the Bank reiterated that “in this uncertain environment, policy decisions will continue to be data dependent and sensitive to the balance of risks to the outlook”, meaning the projection could change between meetings. Most of our panelists see the repo rate ending the year at 3.50%, with only a few penciling in a hike.

Andrew Matheny, economist at Goldman Sachs, commented:

“While the policy decision and voting was in line with our expectations, the qualification of risks was somewhat more hawkish than we had anticipated, perhaps reflecting the upside surprise to core inflation in August and generally pro-inflationary dynamics globally. Our more benign outlook for medium-term inflation (GS 3.7% vs. SARB 4.2%/consensus 4.5% in 2022) supports our expectation that the SARB will refrain from tightening policy until 2023, even if we see some risk that further near-term upside surprises to inflation could prompt a more hawkish policy pivot before then.”

The next monetary policy meeting is scheduled for 28 November.

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