South Africa: SARB stands pat in July
At its meeting on 22 July, the Monetary Policy Committee of the South African Reserve Bank (SARB) unanimously decided to leave the repurchase rate on hold at 3.50%, which was in line with market expectations.
The decision to hold fire largely came on the back of uncertain growth prospects and a relatively contained inflation outlook. While the economic performance surprised on the upside in the first quarter, the recent protests are set to weigh on activity in the short term, particularly by hampering investor sentiment and employment. Moreover, the recovery remains uneven across sectors, while the road back to pre-crisis levels is long amid a slow vaccine rollout, renewed restrictions due to a rise in new Covid-19 cases, policy uncertainty and electricity shortages. Turning to inflation, although higher prices for food, electricity and oil could exert upward pressure on prices in the coming months, price pressures are seen remaining contained overall in 2021 and 2022 as the Bank projects easing core inflation, before increasing to around the midpoint of the Bank’s 3.0%–6.0% target range in 2023.
Regarding forward guidance, while the Bank projects a 25 basis-point hike in Q4 this year and each quarter of next year, its stance will remain highly accommodative as it continues to support the economic recovery. That said, the Bank 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, most of our analysts see the Bank leaving the repo rate at 3.50% through the end of 2021, with only some projecting a hike to 3.75%.
Andrew Matheny, economist at Goldman Sachs, commented:
“While the policy decision and voting was in line with our expectations, the forecast revisions were more dovish than we had anticipated. This—along with our more benign outlook for medium-term inflation than the SARB and consensus—supports our expectation that the SARB will refrain from tightening policy for the foreseeable future.”
The next monetary policy meeting is scheduled for 23 September.