SARB Ups the Ante on Tightening, but May Pursue +25bp Steps Going Ahead

SARB Analysis:

• SARB delivers a +50bp hike to 4.75%, as broadly expected with a 4-1 split in favour of a 50bp hike vs 25bp (3-2 for a 25bp hike last meeting – meaning two members changed call)
• CPI forecasts revised moderately higher: headline to 5.9% y/y vs 5.8% prior, before falling to 5.0% in 2023 & 4.7% in 2024. Oil prices are expected to moderate in 2H22, but inflation expectations have rise from 4.8% to 5.1%.
• Kganyago assesses the balance of risks to inflation to be to the upside, specifically in food and fuel sectors, which are still subject to uncertainty surrounding the Ukraine crisis.
• FY22 growth was revised lower to 1.7% vs 2.0% prior. But kept the same for 2023/24 at 1.9%.
• The FY22 current account saw a notable revision lower to 2.1% vs 3.0% prior, 0.8% in 2023 & 0% in 2024 – something that will add to ZAR weakness.
• ZAR weakness and faster policy normalisation in DM were the key factors tipping this decision over the edge to +50bp. Kganyago was probed extensively in the presser on the risks of crimping growth with larger hikes, but pushed back stating that de-anchored expectations and a weaker ZAR would have worse ramifications in a stagflationary environment.
• Overall, a well-balanced meeting from Kganyago seeking to perhaps front-load the cycle to a certain degree to help anchor expectations and not fall behind the curve on tightening.
• From here, the SARB may revert to +25bp steps for the remainder of this year. But July’s meeting will be a close call and ultimately dependent on wage negotiations and oil/food prices.