MNI SARB Review - July 2021: Contained 2022 CPI Supports Accommodative Policy Outlook

Executive Summary:

• Rates left unchanged at 3.5% (as expected), Unanimous decision, QPM model broadly ignored
• Inflation: End-2021 headline CPI revised higher to 4.3% vs 4.2% prior, core lower to 2.9% vs 3.0% prior. 2022 average inflation revised lower to 4.2% vs 4.4% prior
• Growth Forecast remains unchanged at 4.2%, weighed down by the impact of recent social unrest. Markets were expecting a minor rise in the forecast.
• Key phrase revisions: No real change in phraseology, with Kganyago still alluding to short-term risks to the outlook being tilted to the upside. Highlighted concern over the output gap, downside revision to 2022 CPI forecasts and the unanimous hold decision drove home the dovish bias for the meeting.

SARB Review 22.07.21.pdf

Overall, a well-balanced meeting from Kganyago, given the prevailing economic realities on the ground in SA post-unrest. The statement was little vs the prior meeting with the exception of the GDP and inflation forecasts – which supported the more dovish/accommodative tone. End-2021 headline CPI revised higher to 4.3% vs 4.2% prior, core lower to 2.9% vs 3.0% prior. Although Kganyago noted that inflation risks were tilted to the upside in the near-term, he reiterated that the SARB would look through transitory factors towards the medium-term disinflationary trajectory (2022 avg CPI revised from 4.4% to 4.2%). These price pressures were labelled as mostly contained/anchored and may precipitate a prolonged period of lower rates for longer – adding weight to our base case for rates to remain unchanged until 1Q22