No surprises here: Sarb's MPC holds rates steady

In a recent statement, the South African Reserve Bank's (Sarb) Monetary Policy Committee (MPC) has decided once more to maintain the current interest rates. Commenting on this decision, North-West University Business School economist Raymond Parsons remarked that the MPC's announcement was predictable:

Source: Reuters. South African Reserve Bank's Lesetja Kganyago.

This marks the sixth instance in the past year that the committee has opted to leave interest rates unchanged. As expected, borrowing costs will, therefore, remain higher for consumers and business for longer. The MPC now believes ‘core‘ inflation will reach the desired target of 4.5% sooner by the 2Q of 2025 rather than the 4Q of 2025, as it now sees the risks to inflation as balanced instead of on the upside.

In any event, it is unlikely that interest rates will be cut until much later in 2024, depending also on a reduction in inflationary expectations as well as the timing of any interest-rate cuts by the US Fed.

The MPC reaffirmed its GDP growth forecast of 1.2% for 2024 while still seeing the risks to the growth outlook as ‘balanced’.

The MPC also emphasised that a positive factor in the growth outlook would be if the current progress in suspending load shedding is sustained for the rest of the year. It emphasises the extent to which South Africa’s investment and growth prospects hinge on a sustainable solution to its energy crisis.

A dominant theme in the MPC statement was ‘unusually elevated uncertainty’ in assessing the economic outlook, including political uncertainty in South Africa and trends in the country risk premium.

The quarterly North-West University Policy Uncertainty Index (PUI), due at the end of June, will again calibrate any changes in the level of policy uncertainty in the aftermath of South Africa’s pivotal 2024 elections on 29 May.