Statement of the Monetary Policy Committee

Written on 06/10/2024
MJ Minter Inc

The Monetary Policy Committee (MPC) released a statement on 30th May 2024. This article highlights the key findings.

Overall, inflation has fared less well than expected, currently at 5.2%. This has resulted in a repricing of rate expectations. The outlook, however, continues to see inflation stabilising at the MPC’s 4.5% objective in the second quarter of next year. This is an improvement on the March forecast, which only reached this milestone at the end of 2025.

The positive outlook is largely a result of improvements in the CPI data. Oil prices have also decreased close to $80 per barrel, similar to where they were at the beginning of the year, after briefly exceeding $90. Forecasts suggest oil prices will remain near their current levels. Globally, inflation outcomes in the United States have been softening, and the US Federal Reserve still have some room for adjustments this year. We may also see easing by other major central banks.

Nonetheless, the Committee remains concerned that inflation expectations are elevated, requiring that the MPC deliver on their target sooner rather than later to re-anchor expectations.

The exchange rate of the rand has been particularly volatile in recent times. After reaching a 10-month high against the dollar at R18.08 on 21 May, it has since returned to previous levels. Markets remain focused on the direction of domestic policy, a theme that has dominated many investor conversations over the past few months, and for which the MPC expects greater clarity once the new government has formed.

Economic activity for the first quarter was worse than expected, despite reduced electricity loadshedding. Second-quarter growth is expected to be better, and the MPC still forecast GDP growth of 1.2% this year. In addition to the recent improvements in power supply, measures that would improve economic conditions include reaching a prudent public debt level, improving the functioning of network industries, lowering administered price inflation, and keeping real wage growth in line with productivity gains.

Overall, MPC’s forecasts show a modest acceleration in growth over the next few years, alongside a gradual stabilisation of inflation at our target. Considering this outlook, the MPC decided to keep the repo rate unchanged at 8.25%. We will keep you informed on developments in this regard.