In brief
- As per market consensus, the South African Reserve Bank (SARB) hiked its policy rate by 50bps to 8.25% in its May 2023 MPC Meeting. The decision was unanimous from the 5-member Committee, the first unanimous decision since September 2021 and in its current tightening cycle.
- The April 2023 inflation of 6.8% printed at the lowest reading in 11 months, surprising policymakers 10bps to the downside. The SARB maintained its 2Q2023 inflation forecast at 6.4%, although adjusted its 2023 inflation forecast marginally higher by 20bps to 6.2% as compared to its outlook in its March MPC meeting.
- Despite an increased number of loadshedding days in the year, the central bank marginally revised upwards its 2023 real GDP growth forecast to 0.3% from the 0.2% projected in the previous MPC meeting. The Committee penciled in a reduced intensity for loadshedding (in days) despite the overall increase in loadshedding days by 30 days to 280 days.
- ZAR has weakened 13.3% YTD as at the week ending 26 May 2023, taking the currency to its record low level of 19.65. The Lady R ship armament debacle following news flow suggesting the country is warming up to host Russian President in the upcoming BRICS Summit in August 2023, has amplified the currency weakness
- We like the fact that the authorities ruled out imposing exchange rate controls to stem volatility as ZAR is one of the tradable currencies in our universe. There was concern from market participants that the implementation of Regulation 28 of the Pension Fund Act has exacerbated ZAR volatility.
- The monetary policy statement characterized the policy stance as ‘restrictive’ although there is some longstanding ambiguity on the real repo policy rate as the benchmark. Nevertheless, we think that the upcoming working paper that will pivot the SARB towards a new Quarterly Projection Model – from July 2023 MPC Meeting – that factors in additional variables may provide much clarity.
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