South African Reserve Bank holds fire in May

At its meeting on 30 May, the South African Reserve Bank (SARB) decided to keep the repurchase rate unchanged at a 15-year high of 8.25% for the sixth consecutive meeting. The hold was again unanimous and had been priced in by markets.

The Central Bank's hold reflected higher-than-expected inflation outcomes raising inflation expectations. In addition, while the SARB sees risks to the inflationary outlook largely balanced, the Bank decided to delay normalizing policy in order to anchor inflation expectations around 4.5%. Regarding economic activity, the SARB left unchanged all its GDP growth forecasts for 2024–2026; for this year, it sees the economy doubling its growth rate from 2023.

The SARB provided no explicit forward guidance, stating that its decisions will continue to be data-dependent and sensitive to the balance of risks to the outlook. Of the panelists that expect the SARB to kick off its loosening cycle this year—the vast majority—25–75 basis points of cuts are expected. The SARB will next convene on 18 July.

Goldman Sachs analysts said: “We forecast a rate cut in Q3, which we see as being a close call between the July and September meetings. While our baseline is for a cut in July, our conviction in timing is low and dependent on incoming data as well as currency developments.”

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