The statement by the Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) on 22 September conveyed an understandably hawkish message about the inflation outlook in the economy in the midst of several global and domestic uncertainties.

Prof Raymond Parsons, economist from the Business School of the North-West University (NWU), says the majority view was for a 75 basis-point rise in order to progressively re-anchor inflationary expectations. Significantly, two members of the five-person MPC wanted a 100 basis-point hike.

“With the MPC seeing inflationary risks as being on the upside, it was inevitable that the interest-rate-raising cycle would now continue.”

Prof Parsons says dearer money will nonetheless inevitably have a negative impact 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 the fact that downside risks to growth may well in any event have increased. The combination of the latest persistent Eskom blackouts, cumulatively higher borrowing costs and an uncertain world economy now requires South Africa to set its gross domestic product (GDP) growth expectations for 2023 at only about 1,4%. This is 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.”