Repo rate remains unchanged at 8.25%

The Reserve Bank’s  Monetary Policy Committee (MPC) has decided to keep the repurchase rate at its current level of 8.25%. 

Addressing a media briefing at the last MPC media briefing of the year, the bank’s Governor Lesetja Kganyago said the decision was unanimous.

“Electricity prices continue to present clear inflation risks, and with logistics constraints, are likely to have broader effects on the cost of doing business and the cost of living.  Given uncertain fuel and food price inflation, considerable risk still attaches to the forecast for average salaries.

“Serious upside risks to the inflation outlook remain. In light of these risks, the Committee remains vigilant and stands ready to act should risks begin to materialise,” the Governor said on Thursday.

Market-based expectations for inflation in 2023 are currently 5.8%, while near-term break-even rates have dipped to 4.3%.

He said medium and longer-term market expectations for inflation remain elevated.

“The September survey of the Bureau for Economic Research shows average inflation expectations lower at 6.1% for 2023. The Committee, however, would prefer to see expectations anchored at the mid-point of the inflation target band,” the Governor said.

He said that at the current repurchase rate level, the policy is restrictive, consistent with the inflation outlook and elevated inflation expectations.

SARB’s forecast for global growth in 2023 is broadly unchanged at 2.7% (from 2.6%), and 2.6% in 2024.

“Decisions will continue to be data dependent and sensitive to the balance of risks to the outlook.  The inflation and repo rate projections from the updated Quarterly Projection Model (QPM) remain a broad policy guide, changing from meeting to meeting in response to new data and risks.”

Kganyago said the policy stance aims to anchor inflation expectations more firmly around the midpoint of the target band [of between 3 and 6%] and to increase confidence of attaining the inflation target sustainably over time. 

With South Africa’s inflation rate remaining sensitive to shocks, the MPC will seek to look through temporary price shocks and focus on potential second-round effects and the risks of de-anchoring inflation expectations.

“Guiding inflation back towards the mid-point of the target band reduces the economic costs of high inflation and will achieve lower interest rates in the future.  Since early 2020, the Committee has recommended additional means of lowering inflation that are within the reach of the public sector, including achieving a prudent public debt level, increasing the supply of energy, keeping administered price inflation low and real wage growth in line with productivity gains.

“Such steps would strengthen monetary policy effectiveness and its transmission to the broader economy,” he said.

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While volatile in recent weeks, oil prices have increased over the year and commodity export prices have moderated further. 

“South Africa’s external financing needs will increase as the current account deficit expands from a forecasted 1.3% of GDP this year (from 2.0%), to 2.6% of GDP in 2024 and to 3.5% of GDP in 2025.  The smaller deficit this year is the result of significantly better-than-expected trade outcomes in the third quarter.

“The rand weakened over the past year, depreciating by about 9.5% against the US dollar. The lack of sustained economic growth and dependence on commodities is reflected in the high volatility of the currency in response to global risk-on and risk-off episodes,” Kganyago said.