MPC Announcement: January 2023

Previous MPC announcements. Comments from Tertia Jacobs:

• MPC Announcement - 23 September 2021

  Comments by Tertia Jacobs

  The MPC kept the repo rate unchanged at 3.5%. The decision was unanimous and in line with market expectations. The tone of the statement shifted from neutral to guarded/slightly hawkish. The high level of risk and uncertainty in the global and domestic economy reinforces a more data dependent view when considering interest rate decisions. Hence, while the MPC is preparing the market for a liftoff in interest rates, we remain of the view that the pace of rate hikes would be more gradual than a more hawkish trajectory provided by the QPM model. Our baseline forecast remains for rate normalisation to start in early 2022 but has raised the cumulative number of rate hikes in 2022 from 50bps to 75bps, followed by a further 100bps in 2023.

  The Fed has also provided the market with firm signals about the start of QE tapering, possibly by the end of 2021. The updated dot plot forecast is now indicating a rate hike as early as 2022. The SARB’s QPM is forecasting a total of 161bps of rate hikes by the end of 2022 (which includes a 25bps hike at the November MPC meeting and 135bps in 2022 which 25bps at each of the next seven
  meetings). 

   

• MPC Announcement - 18 November 2021

  Key focus points: The MPC raised the repo rate by 25bps to 3.75%, with 3:2 members in favour of a rate hike. 

  In the November MPC meeting, the MPC decided to raise the repo rate by 25bps. This after paving the way for a lift-off in interest rates in the September MPC meeting. The decision to raise interest rates as soon as November, in our view, was influenced more by the vulnerability of the rand, underscored by recent developments in global financial markets.

  With risks to the SARB’s inflation outlook to the upside, and a negative policy rate adjusted for forward-looking inflation, raised the risk of the SARB falling behind the curve. With the revision in the headline CPI inflation forecast (4Q 21 at 5.3% from 5.0%, and 4.3% and 4.6% in 2022 and 2023) not the catalyst, especially with risks to GDP growth to the downside, two of the MPC members favoured rates remaining on hold. Our take is that the normalisation in rates could be gradual.

• MPC Announcement - 27 January 2022

  Key focus points: The MPC raised the repo rate by 25bps to 4.0%. The decision was not unanimous, with four MPC members in favour of a 25bps rate and one member for rates to remain unchanged. 

  The MPC meeting took place in the context of a more hawkish FOMC, a repricing of implied Fed funds rate expectations (five rate hikes are anticipated in 2022) and an increase in global equity market volatility. However, commodity prices have rallied and emerging market currencies such as the rand have traded orderly. 

  The SARB revised its inflation forecast higher for 2022, from 4.3% to 4.9%. Headline CPI inflation is forecast to peak at an average of 5.5% in 1Q 22 before descending to 4.3% in 4Q 22 owing mainly to base effects; and averaging 4.5% in 2023. The revised forecast is similar to ICIB’s projection. The MPC remains focused on inflation expectations and second-round effects embedded in core CPI inflation. The BER’s latest quarterly survey for Q4 2021 shows a mild increase from 4.4% to 4.8% in 2022 and 4.5% to 4.7% in 2023.

• MPC Announcement - 24 March 2022

  Key focus points: In a unanimous decision, the MPC raised the repo rate by 25bps to 4.25%, as expected.

  The MPC meeting took place against a backdrop of heightened uncertainty about the direction of the oil price, global growth and inflation and a more aggressive frontloaded rate hiking trajectory by the Fed. The rand, however, has been resilient, supported by higher commodity prices.

  The SARB revised its inflation forecast higher for 2022, from 4.9% to 5.8% (ICIB 5.6%) and 4.6% from 4.5% in 2023. Inflation is forecast to peak in 2Q 22 at an average of 6.2% (previously 5.0%). However, we think this does not assume an increase in the fuel price of nearly R2/l. The Minister of Finance said the government is looking at ways to keep the fuel price unchanged in April and May. The under recovery in March is currently averaging R1.95/l. We estimate that subsidising the fuel price by R1/l could cost the fiscus R2bn per month. The Minister of Finance has flagged changes to the basic price formula and margins.
  

• MPC Announcement - 19 May 2022

  Key focus points: In a 4-1 decision, the MPC raised the repo rate by 50bps to 4.75 %, as expected.

  The interest rate path in the QPM showed a more frontloaded trajectory, adding a further 25bps (total of 50bps left) by end 2022 and 6.75% from 6.68% at end 2024.  The tone of the MPC statement and discussion in the Q&A and QPM interest rate forecast was dovish relative to the market expectations embedded in the FRA curve.

  GDP growth was revised from 2.0% to 1.7% in 2022, with risks to growth over the medium term deemed to be balanced. Inflation expectations reflected in breakeven inflation rates and market-based surveys have risen. Risks to the inflation forecast is to the upside.

• MPC Announcement - 21 July 2022

  Key focus points: In a triple split decision (1-3-1 of 50bp, 75bp and 100bp), the MPC raised the repo rate by 75bps to 5.0%. The interest rate path in the QPM shows a more frontloaded hike trajectory, with the neutral policy rate unchanged at 6.78% at the end of 2024. The tone of the MPC statement, discussion in the Q&A and size of the rate hike revealed a more hawkish stance than expected by ICIB and Bloomberg consensus expectations. The MPC statement was perceived as more hawkish by the market, the main driving factor being the vote, with one member in favour of 100bps. The inflation forecast underwent a material upgrade to 6.3% (5.9%) and 5.7% (5.0%) in 2022 and 2023 before returning to 4.7% in 2024. The real inflation adjusted repo rate would have become more negative in 2023 with a smaller rate hike. Inflation expectations deteriorated in the short-term, rising to 6.0% (5.1%) in 2022. The balance of risks to the inflation outlook remains to the upside.

• MPC Announcement - 22 September 2022

  Key focus points: The MPC’s decision to raise the repo rate by 75bps was widely expected. The surprise, however, was that two of the five members favoured a 100bps rate hike, making the decision a hawkish one, similar to the Fed’s decision the previous evening.

  However, whereas the FOMC’s hawkishness was linked to an upward revision in the dot plot interest rate forecast and squashing market expectations of rate cuts as early as H2 23, the MPC’s hawkishness cannot be ascribed to a deterioration in the inflation outlook. Indeed, while the headline and core CPI inflation forecasts were left unchanged at 6.5% and 4.3% in 2022, the forecast for 2023 was revised to 5.3% (P: 5.7%) and 5.4% (P: 5.6%).

   

  But medium and longer term inflation expectations remained contained, i.e. the average five-year inflation expectation rate moderated from 5.6% to 5.4% and 2023 from 5.4% to 5.3%.

• MPC Announcement - 26 January 2023

   

  Key focus points: The MPC hiked the repo rate by 25bps to 7.25% (ICIB: +25bps, consensus: +50bps). Minor changes were made to headline and core CPI inflation forecasts, but risks are deemed to be on the upside.

   

  GDP growth underwent a significant downward revision to 0.3% (1.2% and 0.7%) (1.4%) in 2023 and 2024. The intensification and lengthening of load shedding shaved 2.0ppt off 2023 GDP growth. The moderation in the pace of rate hikes considers the lagged impact of cumulative rate hikes of 350bps since November 2021 on growth.

   

  The MPC refrained from providing forward guidance as to a possible peak in the rate hiking cycle. The March MPC meeting will be data dependent.

   

  The balance of risks to the inflation outlook remains on the upside.

Related questions

• What is the MPC?

  The MPC or Monetary Policy Committee is a five-member committee of the SARB entrusted with steering monetary policy in line with the bank’s inflation targets and framework.

  The current members of the MPC are:

  ·       Mr Lesetja Kganyago, Governor

  ·       Mr Kuben Naidoo, Deputy Governor and CEO of the Prudential Authority

  ·       Ms Nomfundo Tshazibana, Deputy Governor

  ·       Dr Rashad Cassim, Deputy Governor

  ·       Dr Christopher Loewald, Head: Economic Research Department

• How often are MPC meetings?

  MPC meetings are held throughout the year, with MPC announcements on South Africa’s repo rate presented six times a year. Policy committee announcements occur in January, March, May, July, September and November.

• When is the next MPC meeting in South Africa?

  The next MPC meeting in South Africa will be in March 2023. 

• What is the repo rate in South Africa?

  The repo rate in South Africa is currently set at 7.25%.