Persistently high inflation and an ever-tightening monetary policy stance were the primary focal points amongst market participants throughout much of 2022. With the 26th of January 2023 marking the first MPC meeting of the new financial year, the average South African consumer will be hoping for a slowdown in rate hikes seeing that headline CPI came in at 7.2% in December, slightly down from 7.4% in November, providing some evidence that inflation may be on a sustained downward path towards the much desired 4.5% mid-range target policy rate.
The South African Reserve Bank has maintained its aggressive stance against inflation, raising its benchmark interest rate by 25 basis points, bringing the repo rate to 7.25%, and the prime rate to 10.75%. As much as the SARB has prolonged its “most aggressive monetary policy tightening cycle in at least two decades”, the 25 basis point hike is not as steep as some expected. SARB Governor, Lesetja Kganyago, warns that consumers may see food prices soar in 2023, which may bring about further rate hikes throughout the year. Forecasts of headline inflation for 2023 remain unchanged at 5.4%. Still, estimates have been revised slightly higher at 4.8% for 2024, while expectations are that headline inflation will only reach the mid-range target rate of 4.5% in 2025.
Not only will market participants keep their eyes on how inflation evolves over the coming months. Loadshedding is also making a name for itself as a predominant point of discussion, with the SARB forecasting GDP growth of only 0.3%, highlighting the detrimental effects of rolling blackouts on general economic growth.
Sources: Resbank, IOL
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