In brief
- In line with consensus expectations, the South Africa Reserve Bank (SARB) held the repo rate at 8.25% in its January 2024 Monetary Policy Committee meeting. Against the backdrop of disinflation through 4Q2023, the policymakers seemingly erred on the side of caution on fears of upside risks to inflation.
- With the US Federal Reserve expected to pause in this week’s Federal Open Market Committee (FOMC), the tea leaves off the meeting will dwell on the timing of rate cut(s) this year. With SA real policy rate of 3.15% above its steady rate target of 2.5%, we see room for 75bps policy easing in 2H2024 with the repo rate ending the year at 7.5%.
- The policymakers reiterated state-dependency over time-dependency, with emphasis on the headline print at 4.5%. Whereas inflation cooled to 5.1% in December 2023, pulled lower by transport sub-index, there is lingering upside risks to the inflation outlook.
- In our view, the expected widening of the current account balance to -4.0% of GDP in 2026 is not reflective of an upswing in domestic demand. Amidst moderating commodity prices, South Africa’s trade balance has remained resilient touching 2.7% of GDP in 3Q2023. We flag risks in the non-trade balance and that has been the drag to current account balance.
- The SARB confirmed that talks are ongoing with the National Treasury regarding possible profit transfer from the apex bank’s Gold and Foreign Exchange Contingency Reserve Account (GFECRA). Aligned with the consensus, we think that the upcoming FY25 budget reading in late February 2024 will provide guidance on GFECRA treatment without winding down the FX reserves. We think that a partial profit transfer would be the path of least resistance, as opposed to the full transfer of GFECRA to the National Treasury.
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