South Africa

South Africa Monetary Policy May 2023

South Africa: SARB tightens further in May

At its 23–25 May meeting, the Monetary Policy Committee of the South African Reserve Bank (SARB) increased the repurchase rate by 50 basis points, bringing it to 8.25%. The move, which came on the heels of March’s 50 basis point hike, brought the cumulative increase to 475 basis points since the tightening cycle started in November 2021. The decision was unanimous.

The move was driven by several factors: Firstly, the SARB upwardly revised its headline inflation projections to 6.2% and 5.1% for 2023 and 2024, respectively; the SARB doesn’t expect headline inflation to reach the mid-point of the 3.0–6.0% target range until Q2 2025; secondly, the core inflation forecast for 2023 and 2024 was also upwardly revised; thirdly, the Bank’s sees risks to the inflationary outlook remaining skewed to the upside; and finally, despite the ongoing power-supply crisis, the SARB sees economic activity improving—it increased its 2023 growth forecast by 0.1 percentage points to 0.3%.

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 would “seek to look through temporary price shocks and focus on potential second-round effects and the risks of de-anchoring inflation expectations”. The Consensus is for the Bank to keep the policy rate unchanged through to the end of 2023, before reducing it in 2024.

The next monetary policy meeting is scheduled for 18–20 July.

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