SARB slows hiking cycle after frontloading its fight against inflation
27 Jan, 2023

Momentum Investments have released their report based on ‘SARB slows hiking cycle after frontloading its fight against inflation’ prepared by the Momentum Macro Research Team.

Below, is a summary of highlights from the team, as well as a downloadable PDF of the research paper.

Commentary and highlights provided by Sanisha Packirisamy, Economist at Momentum Investments and Herman van Papendorp, Head of Investment Research & Asset Allocation at Momentum Investments.


  • Evidence that inflation is cooling in the United States (US) has given the Federal Reserve (Fed) room to take a step back from its hawkish stance. Although macro uncertainty is still high and recession risks remain elevated, global growth expectations appear to have stabilised. These factors have driven investors out of US assets, including the dollar which is typically viewed as a safe-haven asset, into perceived riskier markets. Consequently, the dollar weakened and the rand, among other emerging market (EM) currencies, benefitted from this trend.
    Nonetheless, risks to the near-term outlook for the rand remain high with analysts forecasting a meaningful risk of recession, although earnings estimates do not yet fully reflect this. Should economic troubles deepen in the coming months, investors are likely to seek out safe-haven assets and pile back into the US dollar, leaving EM assets, including the rand, on the back foot before risk appetite is expected to reverse later in the year.
    Continued interest rate normalisation at a global level, albeit at a softer pace, and upside risks to inflation have prompted the South African Reserve Bank (SARB) Monetary Policy Committee (MPC) to raise interest rates by 25 basis points to 7.25%.
    The MPC’s interest rate decision was in line with eight out of the 20 surveyed analysts (including ourselves) in the monthly Reuters Econometer poll for January 2023, while eleven analysts were expecting a larger rate increment of 50 basis points. One surveyed analyst expected no change in interest rates. The range of interest rate expectations by the end of next year remains wide in light of elevated uncertainty and a wide range in projected economic outcomes.
    The SARB left its headline inflation assumption of 5.4% for 2023 unchanged but lifted its view on 2024 from 4.5% to 4.8%. The SARB continues to flag the balance of risks to the outlook for inflation as being to the upside given stickier local food inflation, upside risks to administered tariffs and risks to salary adjustments to reflect higher food and fuel costs. Despite the international price of oil steadying in the past five months, the SARB continues to raise energy inflation as an upside threat to the local inflation trajectory given the ongoing war in Ukraine and the expected rebound in Chinese growth.
    Despite marked downward revisions to growth for 2023 in November 2022, the SARB shaved off a further 0.8% resulting in a below-consensus growth expectation of 0.3% for this year. Growth is expected to recovery slightly to 0.7% in 2024 (from an estimated 1.4% in November 2022). After taking these steep revisions into account, the SARB sees risks to the growth outlook as being fairly balanced. The SARB calculates that loadshedding will erase around 2% from expected growth this year, from a previous estimate of 0.6% given a higher projected intensity of loadshedding (250 days of loadshedding relative to a previously assumed 100 days in 2023).
    The SARB revealed that while at the November 2022 rate-setting meeting, three members opted for a 75-basis point increase and two preferred a smaller hike of 50 basis points, this time only two members favoured a 50-basis point increase, while three presented an argument for a smaller hike of 25 basis points. None of the members expressed a preference for an unchanged stance on interest rates.
    The SARB is likely to maintain a firm tone in the near term as it acknowledges persistent upside risks to the inflation trajectory, continued interest rate normalisation, globally, and an uptick in longer-dated inflation expectations to 5.5%. We suspect the end of the rate hiking cycle is on the horizon and only anticipate one more interest rate hike of 25 basis points in March.

Download the full report – click below…



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