Balance of risks table as per MPC statement

Dovish Hawkish
  1. South Africa’s economy contracted by 1.3% in Q4 2022.
  2. The bank’s forecast for GDP growth was lowered slightly to 0.2% from the 0.3% that was expected at the January meeting.
  3. Due to intensifying load-shedding and logistical constraints, the supply performance of the economy remains impaired.
  4. A slowdown in global economic growth will result in weaker demand.
  5. The output gap is expected to remain around zero.
  6. Fuel price disinflation is expected to remain, even though revised higher to -0.6% in 2023 from the previous estimate of -2.7%.
  7. Core inflation estimate was lowered marginally to 5.1% in 2023 (previously 5.2%).
  1. Global growth forecast for 2023 was revised higher to 2% from 1.6%.
  2. Headline inflation is forecast to be significantly higher at 6.0% (up from 5.4%) for 2023 with risks assessed to the upside.
  3. Russia and Ukraine war is expected to keep the global oil market relatively tight.
  4. A stronger recovery in China could result in further upside risks to growth.
  5. Rand weakness – the implied starting point for the rand forecast is R18.06 to the USD, compared to R17.32 at the previous meeting.
  6. Headline inflation is only expected to revert to the mid-point of the target range by Q4 2024.
  7. Inflation expectations remain elevated after increasing strongly last year.
  8. QPM implied that the Repo Rate will average 7.13% in Q4 this year.
  9. South Africa’s external financing needs are expected to rise.
  10. Tighter global financial conditions raise the risk profiles of economies needing foreign capital, generally leading to weaker currencies.

Implications for SA markets


Following the surprise outsized 50bps hike by the SARB at its MPC meeting, FRA rates rose sharply as traders adjusted to the new Repo rate and increased expectations of further hikes to come. Post-meeting movements have seen markets reprice the 2×5 tenor, which covers the next SARB meeting, to price in a strong chance of a 25bp hike at the May meeting. Further along the FRA curve, the 4×7 tenor is trading over 8.200%, indicating that a pause is likely after May. However, near-term inflation may likely lower due to a softening in demand as the cumulative hiking of the SARB makes its way through the economy. This would imply that further hiking, while possible, would be less likely, boding well for receivers of FRAs.


Swaps have been paid higher post the MPC announcement, with the curve bear flattening. With risks to the inflation outlook tilted to the upside, underpinning expectations of tighter monetary conditions remaining in place, we could see front-end swap rates remain supported in the near term. Meanwhile, growth concerns are likely to keep long-end swap rates in check. The 2v10 swap spread has narrowed as the curve bear flattens. This bias will likely persist in the near term unless we get some downside surprises in the coming CPI releases, given the upside revision to the inflation forecasts by the SARB. Our view is that this may now be the peak for the cycle, which suggests that receiving at current levels at the front end of the curve is favoured.


The flattening bias in the SAGB curve heading into the meeting persisted following the unexpected 50bp rate hike. The aggressive move drove the rate-sensitive front end of the curve higher, while yields further along the curve declined amid weaker growth expectations. We could see this flattening bias persist over the near term as such an aggressive rate hike will compress longer-term inflation expectations and weigh on the country’s growth outlook.


The ZAR bulls gained momentum after the SARB caught markets off guard as the bank announced its 50bps hike, while market participants had priced in a strong chance of a 25bps hike. The local unit nearly strengthened 30 cents to the greenback, breaching the 17.80 mark on the back of upward revisions in the headline inflation rate. What initially seemed as the SARB’s last rate has now opened the door for further tightening as the central bank ramped up its hawkish remark in an attempt to anchor inflation expectations and tame ZAR weakness. The latest rate decision will maintain a favourable interest rate differential between SA and the US, which is supportive of the ZAR.

Bottom Line

The SARB surprised with a 50bp rate hike, taking the benchmark repo rate to a 2009-high of 7.75%. The MPC’s voting pattern suggested that not all policymakers were on board with the outsized hike, however, with two of the five members voting for a 25bp move. The accompanying statement suggested that the 50bp rate hike was a result of persistently high price pressures and concerns over the risk of ZAR-weakening capital outflows. It will go a long way in affirming the SARB’s commitment to reining in inflation and inflation expectations and will provide significant support for the ZAR.


  • March’s outsized rate hike had more to do with the SARB ensuring that SA can continue to attract capital. Interest rates must be higher to compensate lenders for the risk of exposing their portfolios to SA’s idiosyncratic risk. If foreigners continue to decrease their capital exposure to SA as they have in the past, the ZAR would come under further pressure, which would ultimately stoke inflationary pressures. This is particularly relevant in the current context of global banking-sector stress, which is weighing on market sentiment and holds the potential to trigger capital outflows away from riskier jurisdictions such as SA.
  • These concerns were evident in the following statement: “Tighter global financial conditions raise the risk profiles of economies needing foreign capital, leading generally to weaker currencies. South Africa’s risk premium is sharply higher and will likely remain elevated over the forecast period. Given load-shedding, upside inflation risks, and larger external financing needs, further currency weakness appears likely.”

  • Further supporting the SARB’s decision today were revisions to the inflation forecasts generated by the QPM. The model now expects headline inflation to average 6.0% through 2023, compared to 5.4% previously. Additionally, it points to inflation only re-entering the 3%-6% inflation target range in Q3 this year, rather than Q2 as was previously forecast.
  • The private sector has also clearly taken note of the higher inflation outlook. Both the BER inflation survey and market inflation expectations (as reflected in breakeven rates) are pointing to a stickier inflation outlook. This primarily reflects a weaker exchange rate and more-persistent-than-anticipated domestic and global inflationary pressures.
  • Risks to the overall inflation outlook are assessed to be tilted to the upside at present. Despite some easing of producer price and food inflation, global price levels remain elevated. Russia’s war in Ukraine and China’s economic rebound are expected to keep the global oil market relatively tight, while electricity and other administered prices also continue to pose short and medium-term risks. The recent uptick in ETM Analytics’s inflation risk index captures this:

  • As for the economic outlook, the SARB lowered its GDP growth forecast for 2023 even further from 0.3% to 0.2%. Further out, the economic outlook remains weak, with a 1.0% growth rate expected in 2024. This suggests that the economy will likely remain in the sub-2% lull that it was stuck in for years before the post-pandemic recovery, with structural growth issues mounting.

Going forward

  • Governor Kganyago gave no indication of whether another rate hike is to be expected in May. However, in doing so, he also gave no reason to believe the tightening cycle was over. The SARB’s policy outlook thus remains highly data-dependent, with the situation still extremely fluid and uncertain. That being said, given how tight monetary conditions now are, the balance of risks is tilted towards a pause.
  • On the whole, the SARB’s commitment to fighting inflation will continue to support the ZAR’s resilience against a backdrop of tightening financing conditions across the globe. The ZAR remains undervalued against the USD, and with good reason, but the SARB’s hawkish resolve will stand the local unit in good stead until disinflationary momentum picks up.