South Africa Monetary Policy May 2019

South Africa

South Africa: SARB stays put as some policymakers mull rate cut

May 23, 2019

At its meeting ending 23 May, the Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) kept the repurchase rate unchanged at 6.75%. The decision, which was widely expected by analysts, was not unanimous, however; two of the five policymakers opted for a 0.25% rate cut.

Driving the call to hold off were the SARB’s inflation forecasts, which were cut since March and now see it averaging 4.5% this year (previously: 4.8%) and 5.1% next year (previously: 5.3%). Meanwhile, in their view, downside risks to the economic outlook have been materializing: The economy is expected to have contracted in the first quarter amid mining- and manufacturing-sector woes, and load shedding appears to continue weighing heavily. Moreover, the unfolding debt crisis among the state-owned utilities—and especially Eskom—is expected to hinder investment in the near-term. Taken together, however, policymakers argued that these challenges were “structural in nature and cannot be resolved” through monetary policy.

Policymakers, however, continued to strike a dovish tone amid the precarious state of the economy. In line with the projected containment of inflationary pressures, their current models now see only one 25-basis-point hike before early next year. All told, most FocusEconomics panelists discount the MPC’s assurances; instead, most do not see a rate hike until late next year.

The MPC’s next meeting will be held on 16–18 July.

The SARB’s growth forecasts were also revised; policymakers now see growth at 1.0% (previously: 1.3%) and 1.8% this year and next, respectively. FocusEconomics panelists participating in the Consensus Forecast see the repurchase rate ending 2019 at 6.74% and 2020 at 6.90%.


Author:, Economist

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