The Reserve Bank has started to talk about when it might start talking about "normalising" interest rates - but, though it warned on Thursday of "upside" risks to inflation, it kept rates unchanged as expected, with most economists still expecting them to remain on hold until next year.
And Reserve Bank governor Lesetja Kganyago signalled on Thursday that even were the Bank's monetary policy committee to start raising rates again, monetary policy would remain "accommodative".
Globally there are growing concerns that rising US inflation could push the US Federal Reserve into "normalising" interest rates sooner than expected. That could potentially trigger a repeat of the 2013 "taper tantrum" that crashed emerging-market currencies, including the rand, in the market's panicked reaction to news that the brakes were slowly being applied to quantitative easing.
But Kganyago said the Fed was now so transparent there would not be a repeat - though he was concerned about the "data tantrums" that tend to occur every time the market is surprised by inflation or growth outcomes, and said the Bank will be on guard.
"Whether a taper tantrum or a data tantrum, what we continue to watch is what it means for the inflation outlook," he said in a media briefing following the Bank's monetary policy committee (MPC) meeting.
The Bank forecasts SA's inflation rate will average 4.2% this year and remain well contained at 4.4% for the next two years. And it now sees SA's economy growing by as much as 4.2% this year, up from its previous 3.8% forecast, thanks to sectoral recoveries and new commodity price highs.
It expects growth to slow to 2.3% next year and 2.4% in 2023. These forecasts are still more optimistic than the market average, with the latest Beeld consensus at 3.7% for this year. And ratings agency Moody's, which sees growth of 4% this year, said in a report this week that "beyond the technical recovery in 2021, we forecast growth to remain weak, just in excess of 1% over the medium term".
Kganyago cautioned that it will take time for the economy to get back to pre-Covid levels, and warned of the risks to growth, investment and jobs posed by load-shedding.
"Last year, even as the economy was opening up, we started to see electricity shortages . If we could have load-shedding with the economy contracting by 7% last year, imagine how it will be with the economy growing at 4.2%," he said.
The MPC also emphasised the need for a stable public debt level, and lower wage and administered price inflation.
Its comments came after a Moody's webinar on SA this week at which Ninety One's Nazmeera Moola said she was slightly surprised at the resilience of SA's economy - suggesting that even small structural reforms could have a large impact on growth - but warned that SA has no growth plan beyond 2021.
Banks are seeing very little demand for credit from corporations, which are very cautious about ramping up investment "because they don't have sufficient visibility on what growth looks like", said Moola.
Moody's lead sovereign analyst, Lucie Villa, flagged load-shedding as a short-term risk to growth, along with Covid variants and the slow pace of the vaccine rollout. Moody's noted the government's Operation Vulindlela reform initiative and cited some progress, but said these reforms would not be sufficient to lift long-term growth substantially in coming years.
Villa said in an interview that the ratings agency is expecting small measures, not necessarily bigger reforms, but a "constructive scenario" is possible if the load-shedding outlook improves, high mining prices are sustained and the government sticks to its fiscal framework. But, even though these could boost private sector confidence, growth still will not exceed 2% over the medium term, Villa said, and even 2% would not move the dial on fiscal stabilisation.
Moody's sees SA's debt burden continuing to rise, in the absence of "comprehensive economic and fiscal reform".
Villa was unfazed by the difficult public sector wage negotiations. The government has budgeted for 1.2% average increases over the next three years, but Moody's has pencilled in a "slightly higher" outcome, and a wage agreement could trigger more downward pressure on SA's rating only if it is worse than the agency's forecast.
Moody's downgraded SA's rating twice last year, taking it to two notches into junk territory and on a negative outlook, but took no further action at its scheduled update on May 7. Rival S&P, which has SA's rating at three notches below investment grade and on a stable outlook, was due for a scheduled update after the market closed on Friday night, when it was not expected to change the rating.
Commenting on the Reserve Bank's decision this week, Capital Economics emerging markets economist Virag Forizs said: "We think that rate hikes are some time off as the Reserve Bank's focus will remain squarely on supporting a weak economic recovery."
Stanlib economist Kevin Lings said inflation expectations had become anchored around the midpoint of the inflation target range, which was welcome.
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