South Africa: SARB on hold in March meeting
At its meeting on 25 March, the Monetary Policy Committee of the South African Reserve Bank (SARB) unanimously decided to hold the repurchase rate steady at its historic low of 3.50%, which was in line with market expectations.
The decision came against a backdrop of subdued economic prospects for the short term and relatively contained price pressures. Although the economy expanded in the final quarter of 2020, conditions likely deteriorated in Q1 amid substantial load shedding, moderating consumption and a larger import bill due to rising oil prices. Moreover, the road back to pre-pandemic levels is long amid continued uncertainty over the course of the pandemic and the speed of the vaccine rollout, as well as constraints on the domestic supply of energy. Turning to inflation, while price pressures are expected to remain relatively contained this year, partly due to a stronger rand and lower local food price inflation, higher oil and electricity prices represent upside risks.
In terms of forward guidance, the SARB penciled in two hikes for this year—in Q2 and in Q4. However, it underlined that policy decisions will be data driven and take into account the balance of risks, thus the projection could change from meeting to meeting.
Meanwhile, looking at the potential direction of policy ahead, Andrew Matheny, economist at Goldman Sachs, sees room for further easing:
“We maintain a more benign inflation outlook than the SARB on a 6-18 month horizon (with a projected persistent target mid-point undershoot) on account of our view that the negative output gap will likely keep demand-side pressures subdued. On the basis of this forecast, we expect the SARB to refrain from tightening policy for the foreseeable future and see a fundamental case for easier rather than tighter monetary policy.”
The next monetary policy meeting is scheduled for 20 May.