The South African Reserve Bank has kept the repo rate unchanged at 7.00%, defying market expectations of a further hike, as investors turn their attention to one of the busiest weeks of the second-quarter earnings season both locally and abroad.
Rate pause comes with a warning
The Monetary Policy Committee’s decision to hold rates steady on 23 July came as a surprise. Both FNB’s own forecast and broader market consensus had pointed to a 25-basis-point increase, following the same-sized hike delivered in May. Despite the pause, the central bank was careful not to signal any imminent shift towards easier policy. Two of the six MPC members still voted for a further increase, underscoring that the committee retains a meaningful bias towards tightening.
The Bank’s own language was only marginally less hawkish than in May. It now judges the current policy stance as “appropriately restrictive” following the earlier increase, and its Quarterly Projection Model points to broadly stable rates for the remainder of the year, with any easing pushed out to later in the forecast horizon as inflation converges towards the new 3% target. FNB economists describe this as a “prolonged holding phase” rather than the start of a cutting cycle, with the bar for rate cuts remaining high unless inflation moderates faster than currently expected.
The MPC’s caution partly reflects a deteriorating external backdrop. Escalating tensions in the Middle East have pushed oil prices higher again after a brief retreat, disrupting supply chains and adding to uncertainty for emerging markets generally. Domestically, growth has softened more than expected. While first-quarter GDP surprised on the upside, the Governor noted this largely reflected stronger net exports rather than genuine domestic demand, with growth expected to slow further through the second and third quarters as elevated fuel prices and weaker confidence weigh on households and businesses. Structural constraints, particularly deteriorating municipal performance and continued inefficiencies in transport and energy infrastructure, were also flagged as challenges beyond the reach of monetary policy alone.
Inflation, however, remains the dominant concern. Headline inflation rose to 5.0% year-on-year in June, up from 4.5% in May, driven mainly by core inflation, which climbed to 4.1%. Services inflation stayed elevated across housing, transport and insurance, and a recent Bureau for Economic Research survey showed inflation expectations ticking higher across all respondent groups, with trade unions recording the sharpest upward revision. FNB expects headline inflation to ease slightly to 4.4% in July, though preventing expectations from becoming entrenched remains central to the SARB’s strategy as it commits to anchoring inflation at 3% rather than the old midpoint target.
Consumers, meanwhile, appear to be holding up better than the weaker growth picture might suggest. Retail sales growth accelerated to 2.3% year-on-year in May, from 1.2% in April, even as fuel prices rose sharply on the back of Middle East tensions. FNB’s data suggests households cut back on fuel consumption, likely through reduced travel, to preserve spending power elsewhere.
A packed week for earnings
Locally, attention shifts this week to a run of major mining results. Glencore’s second-quarter update follows a strong first quarter in which copper production rose 19% year-on-year, with full-year guidance unchanged. Anglo American’s first-half results should benefit from a 39% rise in realised copper prices, though De Beers and its steelmaking coal business are both expected to post negative earnings. Kumba Iron Ore has already flagged a sharp decline in first-half earnings, with headline earnings per share down as much as 43% on a stronger rand and weaker logistics payments, while Valterra Platinum and AngloGold Ashanti head into results on stronger footing, aided by higher precious metals prices. Vodacom’s sales update will draw scrutiny of the Safaricom consolidation, with Egypt still doing the heavy lifting amid a subdued South African consumer market.
Internationally, the week marks the peak of second-quarter reporting, with Microsoft, Meta, Apple and Amazon among the US technology giants due to report, alongside payments companies Visa, PayPal and Mastercard. In Europe, AstraZeneca, Shell, LVMH and Rolls-Royce headline a packed slate, while Samsung Electronics reports in Asia. Of the 127 US companies that have already reported this earnings season, the vast majority have beaten expectations, with aggregate earnings surprising to the upside by 43%.
Elsewhere on the continent, central banks largely held steady this week, with Ghana and Nigeria both keeping rates unchanged amid lingering geopolitical risk, while Zambia commissioned a new $75 million solar plant and Lesotho faced scrutiny after leaving R4 billion of borrowed capital unspent during the last financial year.