MPC Announcement: March 2022

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.
  

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 May 2022. 

• What is the repo rate in South Africa?

  The repo rate in South Africa is currently set at 3.5%, unchanged since Covid-19 forced SARB’s hand in slashing 300 basis points last year to help reduce the debt burden among South African consumers.