Executive Summary:

• In line with our expectations, the SARB reduced the repo rate by 25bps to 6.25%, with prime at 9.75%. This was a unanimous call, with the MPC penning a highly dovish statement, and sharply reduced inflation estimates. Although the SARB revised its growth forecasts lower, the growth estimates remain elevated, in our view. Aspects that supported a highly dovish stance were the reduced inflation forecasts, a much wider output gap, a QPM that changed to reflect two cuts of 25bps by 2020 as a result, and a decline in inflation expectations. A key addition to its statement read “the lower inflation forecast and improved risk profile opens some space to provide further policy accommodation to the economy”.

• Our view remains unchanged – we expect a further 25bps reduction in the repo rate during the year, as inflation continues to surprise to the downside. However, the next ‘window’ to cut rates again may present itself only after a potential Moody’s credit rating downgrade has passed. Moody’s is set to review SA’s credit rating on 27 March 2020.