Given the SARB Monetary Policy Committee (MPC)’s historical hawkish bias, it was not surprising that they kept interest rates on hold at the January MPC meeting. What did come as a surprise was the fact that five members of the committee supported the decision, and only one voted to cut rates. The SARB clearly remains very concerned about the fiscal outlook. For five MPC members to vote to keep rates on hold in the face of the dramatic improvement in the inflation outlook indicates that they see real risks to the forecast. One conclusion one could draw would be that they are worrying about Moody’s downgrading in February, and would not want to cut ahead of that decision.
The Bank is working hard to refocus the market’s attention on a target of 4.5%, rather than the 5.75% previously used. This narrative may be a distraction in the face of the improving inflation outlook.
Looking ahead we do not expect rates to fall until the MPC is comfortable with the fiscal outlook, which would require a resolution to the Eskom risks coupled with a sensible budget that starts to improve investor confidence.
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