MNI SARB Review - September 2023: One Swallow Doesn’t Make Summer

Executive Summary:

• The SARB left interest rates unchanged.
• The vote split remained 3-2 with dissenters backing a 25bp hike.
• Governor Kganyago called for more fiscal restraint.

MNI SARB Review - September 2023.pdf

The South African Reserve Bank (SARB) kept interest rates unchanged for the second consecutive time, in line with market expectations. However, the central bank flagged “serious concern” with risks to the inflation outlook, which remain tilted to the upside. During his press conference, Governor Lesetja Kganyago reiterated that the Committee stands ready to react if these risks materialise and said that “the job of fighting inflation is not over,” with the SARB bent on anchoring inflation at the mid-point of its target range.

This week’s monetary policy decision came as no surprise with respect to all of its main parameters. The combination of steady rates with hawkish language was widely expected amid the SARB’s well-documented price stabilisation bias. Another tight vote split may have taken some market participants by surprise, with three members outvoting two dissenters who called for a 25bp rate hike. However, the fact that the Committee remained on the brink of monetary tightening failed to result in any notable hawkish reaction and the market took this week’s decision in stride.

The final paragraph of the statement noted that the SARB recommended additional means of lowering inflation, such as “achieving a prudent public debt level, increasing the supply of energy, moderating administered price inflation and keeping real wage growth in line with productivity gains”. Governor Kganyago subsequently reiterated the call for fiscal restraint, arguing that fiscal deterioration boosts the country’s risk premium, which raises the real neutral interest rate and results in tighter monetary policy. These comments turn the focus to Finance Minister Enoch Godongwana’s Medium Term Budget Policy Statement due on November 1.