MNI SARB Review - May 2023: Turning Restrictive

Executive Summary:

• The SARB hiked rates by 50bp as upside risks to the inflation outlook prevail.
• Governor Kganyago warned of further ZAR depreciation amid idiosyncratic headwinds.
• The central bank said its monetary policy stance is now restrictive.

MNI SARB Review - May 2023.pdf

The SARB raised interest rates by the expected 50bp and for the first time described its monetary policy stance as “restrictive” amid persistent price pressures. The central bank reiterated that the risks to its inflation outlook are tilted to the upside, largely due to a combination of familiar idiosyncratic factors. These include further exchange-rate weakness, which the central bank expects to continue. During the press conference, Governor Lesetja Kganyago effectively kept the door open for more tightening if needed, expressing less concern about potential overtightening than about acting too slow and having to catch up.

The SARB’s rhetoric suggests that they remain committed to pursuing their price stability mandate, while leaving it to appropriate authorities to address idiosyncratic stagflationary challenges. The extent to which the government manages to alleviate these challenges may affect the trajectory of monetary policy. For now, we believe that it would be premature to declare that the tightening cycle is definitely over. The MPC indicated that it will continue to assess data on a risk-adjusted basis, which will inform future rate decisions. The prospect of the SARB following up with more rate hikes, if there are clear signs that price pressures keep running intolerably hot, remains on the table.