In brief
- As widely expected, the South African Reserve Bank (SARB) maintained the repo rate at 8.25% in its July 2024 Monetary Policy Committee (MPC) meeting. Four of the 6-member Committee preferred a hold, whereas the other two pivoted to the dovish side.
- With the SARB’s next MPC meeting a day after the expected FOMC’s first cut in September 2024, we expect it to start its easing cycle then, given the conventional market wisdom of most central banks’ preference not to front run the US Federal Reserve.
- Two schools of thought emerged regarding the assessment of balance of risk tilting to the upside. One, is that the MPC assessment is that the risk factors, both global and domestic, have increased since the last MPC meeting. Secondly, the balance of risk remains the same, only that inflation outlook has improved since the May 2024 meeting.
- Data revisions to legacy GDP prints, partly offset with a more positive load shedding, resulted in a 10bps downgrade in 2024 growth forecast to 1.1% y/y. The negative blunt of load shedding on growth has reduced, supporting the better-than-expected potential growth forecast in the 2024 – 2026 period.
- Notably, ZAR has remained steady despite concern of the downside risk from elevated liquidity as the SARB meets its Gold Foreign Exchange and Contingency Reserve Account (GFECRA) ZAR 100.0bn transfer to the National Treasury in this fiscal year. The SARB put up an advance notice in mid-June, adjusting the liquidity quota limits for the participating banks to reduce the distortive effect of higher liquidity on ZAR and rates.
- Although the SARB has leaned towards a lower inflation target, that is a downward revision of the midpoint target from the current 4.5%, the impression is that the ongoing discussions with the National Treasury are not time-bound. This lower inflation target, and a possible introduction of fiscal anchor, will help anchor inflation firmly in the long-term, but the near-term outlook means that South Africa can muddle-through with the current configurations
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