Executive Summary 

Inflation and Monetary policy

  • The SARB is exploring the possibility of pushing interest rates permanently low/lower if inflation stays low. However this depends on the robustness of the Bank’s inflation forecast, which currently indicates that low inflation is likely a temporary phenomenon.
  • Nonetheless, the SARB is currently working off its baseline assumptions until certainty can be provided about the electricity tariff hike and tax implications or changes (MTBPS and February budget speech). As a result of this, the SARB’s central range for inflation until 2019 stays mostly between 5% and 5.5%.


  • The MPC members expressed deep concern for subdued growth rates in the local economy, at a time when global growth has picked up markedly. The SARB views the SA economy as stagnant despite strong global growth and easy financing conditions. South Africans have become poorer on a per capita basis over the last two years, while confidence levels have been significantly lowered.
  • Overall, the outlook on growth remains sombre, while the SARB remains cautious about its inflation outlook.


  • While we still believe the current environment of low growth and low inflation warrants further interest rate cuts, we remain of the view that the current loosening cycle will remain shallow and short-lived and therefore unlikely to boost growth meaningfully. Much depends on the trajectory of the rand exchange rate, local political headlines, foreign investor sentiment and exogenous factors like the oil price and weather conditions locally. Our view is therefore for two to three more rate cuts before mid-2018, assuming no sustained and significant rand weakness until then.
  • The SARB caution at the MPF strikes us as a concern – we believe the SARB may hold out through the turbulence of the last quarter of this year and resume a shallow cutting cycle in January 2018. However, here again credit ratings risks in June 2018 may pose a risk to the loosening monetary policy trend.