MNI SARB Preview - January 2024: On Hold, Pivot On Horizon

Executive Summary

• The SARB is widely seen keeping rates on hold in January.
• Governor Kganyago ruled out an imminent cut amid stubborn inflation.
• But the central bank's next move is expected to be a rate reduction.

MNI SARB Preview - January 2024.pdf

The South African Reserve Bank (SARB) is widely expected to stand pat on rates in January, albeit a turning point is on the horizon. Headline inflation is expected to have cooled further in December after a temporary spike into 4Q2023, while core inflation sits close to the mid-point of the +3.0%-6.0% Y/Y target range. Still, recent communications suggest that the SARB does not consider its job done and wants to ensure that inflation is anchored firmly around the target mid-point. The absence of dovish-leaning Deputy Governor Kuben Naidoo, who left the central bank at the turn of the year, may delay the pivot to monetary easing.

The SARB’s hawkish bias may result in an on-hold decision this week, but the Committee’s next move will likely be a cut. Global disinflation will continue to filter through into domestic prices, with the relatively optimistic outlook mitigating concerns about any potential unexpected supply shocks. Furthermore, DM central banks are preparing to start their rate-cutting cycles, which will open some space for the SARB to follow suit while keeping interest-rate differentials sufficiently attractive for foreign investors. However, given its cautious stance, South Africa’s central bank may start loosening policy only in 2H2024 once there is clear evidence that inflationary pressures are under control.