MNI SARB Review - July 2023: Hawkish Hold

Executive Summary:

• The MPC voted 3-2 to keep the repo rate unchanged at 8.25%.
• The central bank reaffirmed its data-dependence.
• The Governor refused to declare that the rate-hike cycle is over.

MNI SARB Review - July 2023.pdf

The South African Reserve Bank kept the repo rate unchanged at 8.25%, pressing pause on monetary tightening after ten consecutive meetings, in a split decision with two dissenters voting for a 25bp hike. The inflation path was adjusted marginally lower, but the central bank maintained its assessment that the risks to the price outlook are skewed to the upside. The on-hold decision was accompanied by hawkish rhetoric, as the MPC flagged readiness to resume tightening if needed, while Governor Lesetja Kganyago told reporters that the fight against inflation is not over and the rate-hike cycle is not ended.

Interestingly, Governor Kganyago softened the hawkish tone of his statement by mentioning that the SARB could reconsider its stance “should we become more successful than we initially thought.” However, his emphasis on serious upside risks to the inflation outlook and an uptick in inflation expectations suggest that the bar to monetary policy easing is still relatively high and we may need to wait for the first rate reduction. That being said, most economists believe that the next move in rates will be a cut – which will likely come in 2024. Going forward, inflowing data, DM central bank decisions and developments surrounding South Africa’s idiosyncratic risks (power outages, logistical issues, geopolitics) will provide more clarity on the outlook for SARB monetary policy.