Bank of America has adjusted its outlook for the South African Reserve Bank (SARB), now forecasting that the central bank will leave its policy rate unchanged at its March 26 meeting rather than implement a 25 basis point cut that the bank previously expected.
The change in stance follows a recent jump in oil prices that the bank says has complicated the near-term inflation trajectory. Bank of America highlighted an expected 10-20% rise in fuel prices in April and said that such an increase should keep headline consumer price inflation below 4% - a level the firm believes would justify the SARB remaining on the sidelines.
In reassessing its monetary policy view, Bank of America weighed several factors that, in its assessment, limit the threat from higher oil costs. The firm pointed to existing positive real interest rates, appreciation in gold and platinum group metal prices, and a constructive fiscal trajectory as elements that help contain the macroeconomic effect of the oil shock.
Bank of America concluded that these supporting conditions make it more likely the SARB will pause rather than restart a cycle of rate increases. The bank contrasted the current episode with the 2022 oil price shock, when real interest rates were negative and the central bank responded with catch-up rate hikes. By contrast, South Africa is approaching the present oil shock with positive ex ante real rates already in place.
The SARB's next policy decision is on the calendar for March 26. Bank of America had earlier anticipated a 25 basis point reduction at that meeting but revised its forecast to a no-change call after factoring in the renewed inflation risk tied to fuel prices.
Given the data and the bank's reassessment, market participants and sectors sensitive to interest-rate moves - including financials, consumer discretionary, and sectors linked to commodity prices such as mining - may find the policy outlook altered by this revised expectation.
Summary of the update: Bank of America shifted from forecasting a 25bp cut to expecting no change at the SARB's March 26 meeting, citing an oil-driven rise in fuel prices that keeps headline inflation near but below 4% and argues for a hold in policy.