MPC would do well to stay nimble
The SARB’s recent MPC statement conveyed an understandably hawkish message about the inflation outlook in the economy in the midst of several global and domestic uncertainties. The majority view was for 75 basis points rise in order to progressively re-anchor inflationary expectations, although significantly two members of the five-person MPC wanted a 100 basis points hike. With the MPC seeing inflationary risks as being on the upside it was inevitable that interest rate-raising cycle would now continue.
Dearer money will nonetheless inevitably impact negatively on borrowing costs for both consumers and business at a time when the economy is struggling to maintain momentum. The SARB may be too optimistic about the future growth outlook – and that downside risks to growth may well in any event have risen. The combination of the latest persistent Eskom blackouts, cumulatively higher borrowing costs and an uncertain world economy now require SA to set its 2023 GDP growth expectations at only about 1.4% in 2023, in line with the SARB’s own current forecast.
Given the emphasis by the SARB Governor Lesetja Kganyago on the challenges faced in setting monetary policy when economic uncertainty is unusually high, the MPC would do well to stay nimble. As the Governor has promised, in these circumstances it is right that monetary policy strategy must remain data-dependent, not dogmatic. There are whirlpools on both sides, not on one only.
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