Monetary Policy Review: More caution over interest rates
25 Apr, 2024

Herman van Papendorp, Head of Investment Research & Asset Allocation and Sanisha Packirisamy, Economist at Momentum Investments




Below is a summary (full report in PDF can be downloaded below) prepared by our macro research team on the latest Monetary Policy Review from the South African Reserve Bank:



  • The International Monetary Fund (IMF) expects the global economy to grow by 3.2% in 2024, the same as in 2023.


  • Global inflation is expected to moderate to 5.9% in 2024 (6.8% in 2023). Sticky core inflation is reported to be slowing the progress of global headline disinflation.


  • As a result, global inflation rates are expected to remain above central bank targets in 2024 and interest rates will consequently remain elevated. A shallower interest rate cutting cycle in major economies is expected to start in the second half of 2024.


  • Due to better electricity supply, the South African Reserve Bank (SARB) revised its real gross domestic product (GDP) and potential growth estimates for 2024 and 2025 up from the October 2023 Monetary Policy Review (MPR).


  • However, electricity outages remain higher than in the years before 2023 and so continue to weigh down on economic activity. The SARB’s assumed economic growth impact of loadshedding was reduced from 0.8 and 0.4 percentage points to 0.6 and 0.2 percentage points, respectively for 2024 and 2025. The economic impact of logistical constraints is estimated to be smaller than loadshedding (between 0.5 and 0.75 percentage points over more than 12-months).


  • Growth in domestic demand is back to long-term averages. Real household consumption spending in 2024 is estimated to be slightly better than last year at 0.9%. Fixed investment is expected to dip from 4.3% in 2023 to 0.7% in 2024.


  • Similar to the global economy, higher services inflation is expected to keep domestic core inflation elevated and slow the moderation of headline inflation. Headline inflation is expected to only reach the midpoint of the inflation target range by the fourth quarter of 2025, two quarters later than expected in the October MPR.


  • The SARB developed two new measures of underlying inflation namely, the persistent and common component of inflation (PCCI) and supercore inflation. Both measures are tracking above the traditional core inflation measure.


  • According to the SARB, differentials in bond yields are a key driver of capital flows into SA’s bond market as opposed to interest rate differentials.


  • Higher uncertainty about the path back to the midpoint of the inflation target will keep rates elevated. Unlike the forward rate agreement (FRA) curve which is not pricing in any interest rate cuts in 2024, we still see scope of interest rate cuts in 2024. We estimate four 25-basis points of cuts over 2024 and 2025 but flag risks of a shallower and more delayed interest rate easing cycle.


  • The idea of lowering the inflation target from the current range of between 3% and 6% is gaining traction. The benefits of such a move span across monetary policy, fiscal policy and the real economy. Lowering the inflation target would, however, attract short-term costs but the SARB estimates these costs to be low.








@Herman van Papendorp
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@Sanisha Packirisamy
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