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MPC – 30 March 2023

30 March 2023 Luigi Marinus, Portfolio Manager at PPS Investments

The Monetary Policy Committee (MPC) decided to increase the repo rate by 50 basis points to 7.75%. Short-term interest rates have now increased by 4.25% since the low of 3.5%.

The decision was split among the MPC members with three members preferring a 50-basis point increase and two members preferring a 25 basis point increase. As inflation remained above the top end of the target band and had marginally increased in the most recent print an interest rate hike was expected, although the expectation was for 25 basis points.

Global GDP growth is forecast to improve in 2023, from 1.6% to 2.0%, and deteriorate in 2024 from 2.6% to 2.5%. This is compared to the forecast in South Africa where GDP growth is expected lower at 0.2% from 0.3% in the previous meeting. The governor reiterated that loadshedding had a 2% negative impact on South African GDP growth. There were however slight improvements to the GDP forecasts for 2024 and 2025 with increases from 0.7% to 1.0% and from 1.0% to 1.1% respectively. These expectations are broadly aligned with market expectations but highlight an economy growing well below potential.

The main reason for the higher-than-expected interest rate hike was the increase to the inflation expectation. This expectation increased to 6.3% for 2023 and to 5.8% for 2024, with inflation forecast to move back within the target band in the third quarter of 2023 and to the mid-point of the target band in the final quarter of 2024. The recent hawkish stance of the MPC was manifested in this meeting with the larger-than-expected interest rate increase and shows the severity with which the MPC wants to fight inflation.

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