MPC – 24 November 2022

The Monetary Policy Committee (MPC) decided to increase the repo rate by 75 basis points to 7.0%. Short-term interest rates have now increased by 3.5% since the low of 3.5% and are now higher than the repo rate level before the start of the pandemic.

The decision was split among the MPC members with three members preferring a 75-basis point increase and two members preferring a 50 basis point increase. This short-term interest rate increase was largely expected by the market as inflation remained above the top end of the target band and marginally higher than the previous print last month.

The rate hike came in the face of a moderation of SA GDP growth expectations by the South African Reserve Bank (SARB). The SARB now forecasts GDP growth of 1.8% for 2022, down from the previous forecast of 1.9%. In addition, forecasts for 2023 and 2024 are 1.1% and 1.4% respectively, both 0.3% lower than previously forecasted. The main reasons highlighted for the decline in growth expectations are anticipated lower commodity prices and an increase in load shedding, which could have a 0.6% reduction in GDP growth in 2023. Inflation expectations are set to moderate as evidenced by the SARB’s forecast of 6.7% this year, 5.4% in 2023, and 4.5% in 2024 and 2025.

Global and local macroeconomic conditions outlined by the SARB point to an expectation of a continued slowdown in growth. The SARB has however made it clear that inflation and inflation expectations are their primary focus by remaining hawkish and aiming not only to get inflation back within the target band but to the midpoint of the band. In the long run, a stable, well-anchored inflation level is good for the economy, but consumers will need to navigate the difficult increasing interest rate cycle to get there.