Monetary Policy Review: SARB keeps interest rates steady at 8.25% – a less hawkish hold
2 Jun, 2024

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


Below is a summary prepared by our macro research team on the latest Monetary Policy Committee interest rate decision from the South African Reserve Bank:


  • Major central banks’ interest rates plateaued in the most recent decision announcements (April and May). However, the tone is starting to diverge with the European Central Bank (ECB) and Bank of England (BoE) suggesting that they could cut interest rates sooner than the United States (US) Federal Reserve (Fed).


  • The stance of major central banks, the US Fed in particular, influences interest rate decisions of emerging markets (EM). Given that the US Fed is expected to keep interest rates higher for longer, EMs (including South Africa (SA)) are likely to follow suit to guard against capital outflows and risk inflation ticking back up.


  • Empirical evidence including, unplanned maintenance, planned maintenance, the energy availability factor (EAF) and the usage of Open Cycle Gas Turbines (OCGT) suggests that Eskom is structurally in a better position than a few months ago which explains the 65 day-gap in loadshedding (as at 29 May). The impact of loadshedding on GDP was revised slightly lower for 2024 (0.5 percentage points from 0.6 percentage points).


  • Despite easing structural constraints, the SA Reserve Bank (SARB) left its estimates for economic growth over the medium term unchanged at 1.2% (2024), 1.4% (2025) and 1.6% (2026).


  • Headline inflation is expected to reach the midpoint of the inflation target range sooner (in the second quarter of 2025). Consequently, headline inflation is expected to be lower in 2025 at 4.5% (previously 4.6%). The estimated headline inflation for 2024 was unchanged at 5.1%.


  • The identified risks to the inflation trajectory were the same as in March (food inflation, exchange rate, and oil prices). However, these risks were assessed as broadly balanced in May (previously assessed to the upside).


  • On the back of better-than-expected services inflation in April, the SARB lowered its core inflation estimate for 2024 to 4.7% (previously 4.8%). Estimates for 2025 (4.6%) and 2026 (4.5%) were left unchanged.


  • The results of the elections (which took place on 29 May) are scheduled to be released on 2 June 2024, according to the Independent Electoral Commission of SA (IEC). The SARB will likely look through short-term currency effects and focus on any potential sustained weakness, insofar as it impacts inflation expectations and the inflation trajectory. Leading into the elections, the rand strengthened to an average of R18.45/US$ in May from an average of R18.78/US$ in April.


  • The Crop Estimates Committee’s (CEC) April forecast indicates that the recent El Niño has negatively affected summer crops but the impact has been mild relative to previous episodes of El Niño. The Agricultural Business Chamber of SA (Agbiz) notes that El Niño has officially ended and we are currently in a neutral weather state.


  • The Monetary Policy Committee (MPC), with the addition of Dr Mampho Modise, unanimously decided to keep the repo rate unchanged at 8.25% for the sixth consecutive meeting, as we had anticipated and in line with the Reuters median consensus.


  • In our view, the MPC’s stance was less hawkish in this statement but they acknowledged risks to the outlook posed by political uncertainty.


  • We expect two 25-basis point interest rate cuts this year (starting in September 2024) and two in 2025.




@Herman van Papendorp, Momentum Investments
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@Sanisha Packirisamy, Momentum Investments
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@Tshiamo Masike, Momentum Investments
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