SARB MPC Meeting Review and Rand Price Outlook

The ZAR’s reaction to the SARB MPC decision and policy statement was relatively muted as the decision was in line with consensus, and guidance from the central bank was mostly like that issued in the previous meeting and address. On a positive note, we did see a slight upward revision to the outlook for GDP in 2023.

Key Takeaways from the SARB MPC meeting:

1. The Monetary Policy Committee has decided to maintain the repurchase rate at 8.25%

2. The global economy is projected to experience steady but modest growth, with the international growth forecast remaining largely unchanged at 2.6% for 2023 and 2.7% for 2024.

3. The South African Reserve Bank has revised its GDP growth forecast upward from 0.4% to 0.7% for the year.

4. Expenditure by firms, households, and the government remains positive in real terms, but household disposable income growth is sluggish, and debt service costs have risen.

5. Inflation prospects are marginally positive, with minimal pressure from GDP growth. Rising oil prices and South Africa’s increasing external financing needs are concerning, leading to higher long-term borrowing costs and a depreciating rand against the US dollar. There are inflation threats from high food prices and electricity costs

SARB MPC

The Monetary Policy Committee (MPC) has chosen to maintain the repurchase rate at 8.25% per annum, a move aimed at stabilizing inflation expectations around the midpoint of the target band and mitigating the economic repercussions of high inflation. The MPC’s decisions going forward will rely heavily on data and will be sensitive to the balance of risks.

According to the South African Reserve Bank (SARB), the global economy is expected to witness a steady but modest growth trajectory. The international growth forecast remains largely unaltered at 2.6% for 2023 and 2.7% for 2024.

In terms of the domestic economy, the SARB has revised its GDP growth forecast upward from 0.4% to 0.7% for the year. However, South Africa’s economic growth has been inconsistent and is highly susceptible to new shocks. Factors such as improved logistics and a decrease in load-shedding or an increase in energy supply could potentially bolster growth significantly.

However, South Africa is grappling with challenges including escalating electricity load-shedding and declining prices for commodity exports. Constraints in energy and logistics are hampering economic activity and escalating costs. Adverse global climatic events and intensified El Niño conditions are posing additional risks to the agricultural outlook.

On the demand and investment front, expenditure by firms, households, and the government remains positive in real terms. Even though household disposable income growth is sluggish, debt service costs for households have escalated. However, credit growth to households and corporates has seen an increase compared to the previous year. The investment forecast for South Africa has been revised upward to 7.7%.

Inflation prospects are marginally positive, with minimal pressure on inflation from GDP growth. However, rising oil prices and South Africa’s increasing external financing needs are concerning. Long-term borrowing costs have surged, and the rand has depreciated against the US dollar. The inflation forecasts present a blend of moderation and risks, with high food price inflation and electricity prices posing clear inflation threats.

The USD/ZAR

The rand is currently finding more short-term direction from macro events than those of which are local. Risk off trade has followed a more hawkish US Federal Reserve overnight who suggested that rates could stay higher for longer.

The USD/ZAR currently trades within a short-term consolidation between levels 18.75 (support) and 19.10 (resistance).

A close above 19.10 would consider an upside breakout with 19.35 the initial upside resistance target from the move. In this scenario a move below the mid-point of the current range might be used as a stop loss consideration in this scenario.

A close below 18.75 would consider a downside breakout with 18.40 the initial support target from the move. In this scenario a move above the mid-point of the current range might be used as a stop loss consideration in this scenario.