PPS Investments: MPC – 23 November 2023

The Monetary Policy Committee (MPC) unanimously decided to leave the repo rate unchanged at 8.25%. Governor Kganyago highlighted the recent increase in local inflation and that near-term pressure on inflation is to the upside but believes that the current level of the repo rate is restrictive.

Should inflation concerns manifest though, the MPC would not hesitate to continue increasing short-term rates. As in previous MPC statements, it was reiterated that local administrative management could help to lower inflation.

Forecasts for local GDP growth and inflation improved slightly with GPD growth expected at 0.8%, 1.2% and 1.3% for 2023 through 2025 from 0.7%, 1.0%, and 1.1% respectively, and inflation expectations are 5.8%, 5.0% and 4.5% compared to the previous forecasts of 0.1% higher in 2023 and 2024 and unchanged for 2025. This seems to suggest that although we may be at or near the peak in the interest rate cycle the first rate cut is likely a long way off still.

Asset managers require a careful balance between risky assets and cash as there is value in local equities and local bonds but inflation surprises would be negative for both asset classes, while cash continues to offer a compelling above-inflation yield. At PPS Investments we maintain a slightly conservative stance across portfolios with an overweight cash position and a neutral allocation to both equities and bonds, looking for opportunities to deploy into growth assets.