MPC Commentary

The Monetary Policy Committee (MPC) decided to increase the repo rate by 25 basis points to 4.25%, marking the third consecutive 25 basis point increase since the low of 3.5%. The decision was split among the MPC members with three members preferring the 25 basis point increase and two motivating that a 50 basis point increase would be more appropriate.

The South African Reserve Bank (SARB) moderated their forecasts on global growth mainly due to the outbreak of the war in Ukraine and the continued spread of COVID 19 in Asia. Global GDP growth is expected to increase by 3.7% in 2022 compared to the previous 4.4% growth expectation. Similarly, growth is expected at 2.8% in 2023 compared to the 3.3% previously but remains unchanged at 2.7% in 2024. In South Africa in contrast GDP growth was revised upwards from 1.7% to 2.0% for 2022 and unchanged at 1.9% in 2023 and 2024. The increase in commodity prices was the main factor that led to the increase in expected GDP growth.

The increase in the repo rate was widely expected by the market as upward inflation pressure persists both locally and globally. At PPS we’ve maintained a high allocation to domestic bonds even as short-term rates have been increasing. The steep yield curve has meant that the yield available in the long end of the curve has offset any upward interest rate pressure which meant bonds have continued to deliver an above inflation return. We remain constructive on the asset class and maintain a large component of the bond holding in inflation-linked bonds.