As was widely anticipated, the Monetary Policy Committee (MPC) decided by a 3:2 majority to keep interest rates on hold for now, instead of opting for a further increase of 25 basis points.

In commenting on the MPC’s decision on 20 July, Prof Raymond Parsons, economist from the Business School at the North-West University (NWU), says it was the right call by the MPC, given the latest global and domestic economic cross-currents, as well as the cumulative impact of previous rate hikes on the economy.

“As rates of inflation have begun to recede to levels within the inflation target range of the South African Reserve Bank (SARB), the MPC believes that, for now, it has done enough on the anti-inflation front. The fact that borrowing costs are stabilised for the time being will have a positive impact on business and consumer confidence.”

Prof Parsons points out that the MPC statement nonetheless sees the risks to the inflation outlook as still being on the upside. “Hence the overall message of the MPC’s decision must be interpreted as a ‘hawkish pause’, as it is coupled with warnings about possible further interest rate hikes. Interest rates may not have peaked yet.”

He says the divided MPC vote reflects the possibilities. Future decisions of timing and judgement remain as new data emerges over the next few months. Although the MPC has revised its gross domestic product (GDP) growth forecast for 2023 upwards from 0,3% to 0,4%, the growth outlook for 2024 remains at a very modest 1%.

“As the MPC statement again emphasises, the SARB cannot resolve problems lying outside its area of competence, for instance fiscal policy, energy challenges or administered prices. Yet, these days such factors feed into country risk and hence interest rates and the exchange rate. The lower the country risk, the easier it becomes for the SARB to implement its overall mandate.”

According to Prof Parsons, the structural solutions therefore lie beyond monetary policy alone, but rather in policy direction and implementation as a whole.