South Africa

South Africa Monetary Policy March 2023

South Africa: SARB surprises markets and accelerates pace of tightening in March

At its 28–30 March meeting, the Monetary Policy Committee of the South African Reserve Bank (SARB) increased the repurchase rate by 50 basis points, bringing it to 7.75%. The move, which came on the heels of January’s 25 basis point hike, surprised markets once again—a 25 basis point increase had been penciled in. The decision regarding the size of the hike—the ninth consecutive since November 2021—was once again not unanimous: Two of the five committee members preferred a 25 basis point increase.

The move was driven by the Bank’s assessment that risks to the inflationary outlook remain distinctively skewed to the upside. The SARB upwardly revised its headline inflation projections to 6.0% and 4.9% for 2023 and 2024, respectively. The core inflation forecast for 2024 was also upwardly revised. Consequently, inflation is seen hovering around the upper bound of the 3.0–6.0% target range. The SARB expects headline inflation to reach the mid-point of the target range only by Q4 2024.

With regards to economic activity, the power-supply crisis hinders the outlook; the SARB cut its 2023 growth forecasts further to 0.2%. More positively, the 2024 outlook improved, and the growth projection was raised to 1.0%.

With regards to future policy moves, the SARB’s tone was largely unchanged from its previous communiqué—hawkish but vague. The Bank remains committed to anchoring inflation expectations at 4.5%, the mid-point of its inflation target band. Amid increased uncertainty, it stated it will “seek to look through temporary price shocks and focus on potential second round effects and the risks of de-anchoring inflation expectations”.

The next monetary policy meeting is scheduled for 23–25 May.

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