MNI SARB Review - January 2024: Unanimous Hold

Executive Summary:

• The SARB delivered its second back-to-back unanimous on-hold decision.
• David Fowkes joined the Committee as a new voting member.
• Hawkish rhetoric suggested that the fight against inflation is not over.

MNI SARB Review - January 2024.pdf

The South African Reserve Bank (SARB) threw no curveballs at the market at the start of the new year, keeping the repo rate unchanged at 8.25% in its second consecutive unanimous decision. The tweaks to the central bank’s macroeconomic forecasts were mostly cosmetic, with the risks to the inflation outlook still assessed to be tilted to the upside. However, the tone of the meeting was more hawkish than expected, as Governor Lesetja Kganyago used his press conference to reaffirm his well-documented bias. The Governor said that the Committee lacks conviction that inflation is falling towards the target in a sustainable manner, while clear evidence of that is a necessary condition for cutting interest rates.

Most sell-side analysts expect the SARB to start cutting rates later this year, despite Governor Kganyago’s “higher-for-longer” messaging, but the exact timing of the starting point of the easing cycle remains shrouded in uncertainty. We think that cuts from around mid-2024 seem probable, given that by that time the MPC should have sufficient evidence of sustainable disinflation. However, the central bank seems determined to remain flexible and attentive to risks, which may shift the start of the easing cycle in either direction. Apart from macroeconomic indicators, including the coming inflation prints, it will be worth monitoring the February budget statement, with the SARB recommending “achieving a prudent debt level” despite a difficult fiscal situation.