MNI SARB Preview - March 2024: Steering Clear Of Pre-Election Cut

Executive Summary

• The SARB will likely keep interest rates on hold and stick with hawkish tone.
• Upside surprise in CPI data and ongoing election campaign preclude imminent cuts.
• Governor Kganyago continues to stress the importance of the +4.5% Y/Y target mid-point.

MNI SARB Preview - March 2024.pdf

This week’s monetary policy decision from the South African Reserve Bank (SARB) is seen as a placeholder, with interest rates universally expected to remain on hold, after a surprise uptick in key inflation metrics dispelled any doubts about the near-term course of action. The SARB’s communications continue to signal an intention to anchor inflation (both headline and the core component) as well as inflation expectations at the +4.5% Y/Y mid-point of the +3.0-6.0% target band, with Governor Lesetja Kganyago stressing that monetary easing may not begin until this is achieved in a sustainable manner.

Inflation and inflation expectations remain above the central bank’s preferred levels, while cutting rates in the midst of a bitterly fought election campaign would undermine market confidence in the institution’s inflation-fighting resolve. We expect the Committee’s decision to be unanimous after the January meeting saw no dissenting votes. Note that the panel’s line-up is undergoing slight tweaks, with Mampho Modise set to join the central bank as Deputy Governor at the beginning of next month. The SARB will then have one more vacancy to fill, as it prefers to have an odd number of MPC members, in order to avoid situations in which the Governor would have to cast a tie-breaking vote.