As expected, the MPC left interest rates unchanged for the fifth such meeting in a row in what can be described as a hawkish hold. The probability of the timing of the first rate cut has thus been shifted out slightly to no earlier than September, from the expectation of a July rate cut at the last MPC meeting.

Several factors have contributed towards this slight shift. Firstly, internationally, one has interpreted there to be a shift towards a later start to the rate reduction process.

Secondly, the rise in CPI inflation and core inflation in February, principally due to higher-than-expected increases in medical aid inflation, have compelled the Reserve Bank to raise its inflation forecast for this year by 0.1% and to extend the timeline at which inflation will have returned to the 4.5% midpoint of the inflation target, to the end of 2025 instead of the middle of that year.

Thirdly, the Reserve Bank clearly fears an escalation in food inflation in response to the drought conditions currently being experienced in the country’s northwestern regions.

Finally, the Bank alluded to the fact that the Rand exchange rate has been a little weaker than previously anticipated.

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