South Africa Monetary Policy January 2021

South Africa

South Africa: SARB stays put in first meeting of the year

January 21, 2021

At its first meeting of the year on 21 January, the Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) left the repurchase rate unchanged at its record low of 3.50%. The decision was largely in line with market analysts’ expectations; however, it was not unanimous as two of the five-member committee voted for a 25-basis-point cut.

The Bank’s decision to hold came amid a muted short-term growth outlook and subdued inflationary pressures. While the South African economy rebounded strongly in the third quarter of 2020, growth likely slowed in Q4 and is expected to remain muted in Q1 2021 due to the rising number of new virus cases and reimposed restrictions. Moreover, the road back to pre-pandemic output levels remains bumpy amid continued uncertainty with regard to the evolution of the health crisis and the deployment of vaccines, weak public finances and constraints on the domestic supply of energy. Turning to inflation, price pressures remain broadly contained despite higher food and oil prices. The slow pace of the recovery should keep inflation below the midpoint of the Bank’s 3.0%–6.0% target range for this year and next.

In terms of forward guidance, despite the relatively dovish bias on the policy stance, as indicated by two MPC members favoring a further rate cut, the SARB projected no easing in the near term. Instead, it penciled in two hikes in Q2 and Q3 this year. 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.

Commenting on the potential direction of policy ahead, Andrew Matheny and Dylan Smith, economists at Goldman Sachs, reflected:

“We continue to forecast 75bp of further rate cuts from the SARB to a 2.75% terminal policy rate by Q3 2021, although our conviction in the depth and timing of cuts has decreased on the back of the recent move higher in commodity prices.”

The next monetary policy meeting is scheduled for 25 March.

FocusEconomics Consensus panelists see the SARB repo rate ending 2021 at 3.57% and 2022 at 4.21%.


Author:, Economist

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South Africa Monetary Policy January 2021 0

Note: Repo rate in %.
Source: South African Reserve Bank (SARB).


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