South Africa

South Africa Monetary Policy May 2019

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

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, 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. Exacerbating matters, 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 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.

Taking an off-Consensus view, analysts at Goldman Sachs are increasingly confident that policymakers will cut rates over the short-term. They noted:

“We view the split on the MPC and downward forecast revisions as dovish developments supportive of our baseline expectation that a gradual easing cycle will begin in July. […] However, the appointment of Dr. [Chris] Loewald, who we view as moderately hawkish and broadly aligned with the views of the Governor, though not completely unexpected, represents a somewhat hawkish development.”

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

South Africa Interest Rate Forecast

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