Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
Executive Summary
- The South African Reserve Bank will likely extend the tightening cycle and raise the key interest rate by 25bp.
- Latest GDP data pointed to weak growth dynamics, while CPI figures topped expectations, presenting a policy dilemma for the SARB.
- SARB communications have signalled that the central bank prioritises anchoring inflation near the +4.5% Y/Y mid-point of the target band over supporting economic growth,
MNI SARB Preview - March 2023.pdf
Figure 1. South African CPI vs. Core CPI. The shaded region represents the SARB’s target band. The red line represents the mid-point of the official target band.
The latest inflation data arguably cemented the case for another rate hike from the SARB this week. Headline CPI unexpectedly accelerated to +7.0% Y/Y in February, while core CPI quickened more than forecast to +5.2% Y/Y, with both metrics staying above the mid-point of the SARB’s tolerance band. The data came on the heels of a survey conducted by the Bureau for Economic Research which showed that inflation expectations for the year ahead increased to +6.3% Y/Y from +6.1% previously. Although monetary tightening delivered to date affects the economy with a lag, the SARB is under pressure to maintain its hawkish posture in order to guide inflation towards the mid-point of its formal tolerance band.
We think that the SARB has demonstrated a bias towards fulfilling its inflation mandate vis-à-vis supporting GDP growth and is likely to deliver a 25bp rate hike, despite the obvious headwinds for the South African economy. First, already in its January statement, the SARB noted that Eskom’s load-shedding is believed to be fuelling inflation in addition to weighing on economic growth. Faced with the stagflationary implications of power outages, the SARB will likely choose to focus on keeping prices under control, while leaving it to the government to address the structural problems haunting the beleaguered utility. Second, recent central bank communications indicate that SARB officials are cognisant of the growth/inflation dilemma but are willing to prioritise pursuing the central bank’s inflation mandate over supporting economic growth
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.