South Africa

South Africa Monetary Policy January 2023

South Africa: SARB slows down pace of tightening in January

At its 24–26 January meeting, the Monetary Policy Committee of the South African Reserve Bank (SARB) increased the repurchase rate by 25 basis points, bringing it to 7.25%. The move, which came on the heels of November’s 75 basis point hike, largely took markets by surprise—a 50 basis-point increase had been priced in. The decision regarding the size of the hike—the eighth consecutive increase since November 2021—was once again not unanimous: Two of the five committee members preferred a 50 basis point increase.

The move was driven by the Bank’s assessment that risks to the inflationary outlook remain skewed to the upside, partially due to higher price expectations for food and energy. The SARB left its 2023 headline inflation forecast unchanged but upwardly revised its 2024 forecast. Conversely, core inflation forecasts for 2023 and 2024 were both downwardly revised. While the SARB forecasts both headline and core inflation within the SARB’s 3.0–6.0% target band in both 2023 and 2024, they are seen above the mid-point of the range.

With regards to activity, the SARB drastically cut its growth forecasts for 2023 and 2024; they were revised to 0.3% and 0.7%, respectively, down from 1.1% and 1.4%. The drastic cooling of the economy called for a slowing of the pace of tightening.

With regards to future policy moves, the SARB’s tone was largely unchanged from its previous communiqué—hawkish but vague. The Bank reiterated its commitment to bringing inflation back to the mid-point of the target band and anchoring inflation expectations. However, as uncertainty has increased, it stated that “monetary policy decisions will continue to be data dependent and sensitive to the balance of risks to the outlook”.

The next monetary policy meeting is scheduled for 28–30 March.

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