ECONOMIC AND MARKET OVERVIEW
MARCH IN REVIEW
The Monetary Policy Committee (MPC) of the South African Reserve Bank surprised market participants with a 0.5% increase in the official lending rate. This was 0.25% higher than expected as the bank cited concerns about the persistence of inflation well above their 4.5% target. Governor Lesetja Kganyago said that guiding inflation back towards the mid point of the target band would reduce the economic costs of high inflation and enable lower interest rates in the future. Achieving a prudent public debt level, increasing the supply of energy, moderating administered price inflation, and keeping wage growth in line with productivity gains would enhance the effectiveness of monetary policy and its transmission to the broader economy.
The South African Reserve Bank was not alone in raising interest rates in March. The US Federal Reserve (0.25%) and the European Central Bank (0.50%) also decided that the back of rising inflation has not been broken yet. The US Federal Reserve’s rate decision was the seventh consecutive hike. Chairman Powell’s testimony to Congress suggested there is likely to be further 0.25% hikes not just at the May meeting but also possibly in June. The timing of an inevitable Fed “pivot” remains elusive since the hiking cycle is yet to end. But when it comes, cuts might be aggressive if disinflation is rapid, and recession is evident.
