Reserve Bank expected to leave interest rates unchanged

Lesetja Kganyago

Economists and analysts have a near-unanimous consensus that the South African Reserve Bank (SARB) will keep the repo rate unchanged.

The SARB’s Monetary Policy Committee (MPC) will meet on Thursday, 21 September 2023, to decide whether to increase, decrease, or keep interest rates unchanged.

A Thomson Reuters poll published last week showed that 29 out of 30 analysts and economists expect no change in the repo rate.

Miyelani Maluleke, an Absa Corporate and Investment Banking economist, shares this view and expects the MPC to keep the repo rate unchanged at 8.25%.

While interest rates are likely to remain unchanged, the details of the statement will be scrutinised as the market tries to understand how monetary policy will evolve going forward.

“We believe that the MPC will retain a cautious tone in its statement due to several factors,” Maluleke said.

Despite the continued deceleration in headline CPI inflation until July, near-term upside inflation risks have increased since the last MPC meeting.

Brent crude oil prices have risen by about 18.0% since the July MPC meeting, while the rand has weakened by 2.1% in trade-weighted terms.

Some upward revision to the SARB’s near-term CPI inflation forecasts seems likely at this MPC meeting.

Meanwhile, the recent escalation in load-shedding intensity will keep the MPC concerned about business mitigation costs and the risk of pass-through to consumer prices.

Moreover, the Q3 Bureau for Economic Research (BER) survey showed a marked moderation in average inflation expectations.

Away from domestic factors, the ongoing uncertainty about the global interest cycle will likely also be of concern to the MPC.

“As such, we expect the MPC to retain a cautious tone in its remarks, consistent with the risks to the inflation outlook,” he said.

Annabel Bishop
Investec chief economist Annabel Bishop

Many other economists and banks, including the BER, Nedbank, and Investec, share this view.

The BER said inflation is likely to be under pressure in the coming months due to higher fuel prices and other higher load-shedding.

However, the BER believes the Reserve Bank will look past the short-term pressures and keep interest rates at 8.25%

Investec chief economist Annabel Bishop said that while higher fuel prices are a pressure point for inflation, their weighting is not so great as to be world-shifting for rates.

She said any near-term upward inflationary pressure does not reflect a complete turn. The rate should return to the SARB’s midpoint of 4.5% for most of 2024.

Nedbank also flagged mild upward inflation pressure from higher fuel prices and rising domestic input costs.

These pressures include the jump in electricity tariffs, the return of severe load shedding, and continued rand weakness.

“However, we still expect food prices to fall further off a high base, contained by generally subdued global prices, weaker domestic demand, and reasonably healthy stock levels,” it said.

“Core inflation is forecast to stay below 5%, kept in check by shrinking consumer demand as the squeeze from the earlier aggressive rise in interest rates intensifies.”

On balance, Nedbank said the MPC has already done enough to ensure inflation’s return to the midpoint of the target range.