20180126-法国巴黎银行-South_Africa__Tinkering_with_Taylor_11页_716kb

South Africa: Tinkering with Taylor – Summary

Core Content

This document provides an analysis of the South African Reserve Bank's (SARB) monetary policy in 2018 using various calibrations of the Taylor rule. It evaluates how the rule can be applied to assess the adequacy of current policy rates and predict future adjustments, while also considering broader macroeconomic and political factors influencing the SARB's decisions.

Main Views

The Taylor rule, which links policy rates to inflation and output gap, is used as a tool to evaluate the SARB's monetary policy stance. The document highlights the following key points:

• Taylor Rule as a Guideline: The Taylor rule is not a rigid rule but a flexible framework that helps assess the appropriate level of monetary policy. It is used to estimate the required nominal policy rate based on the equilibrium real rate, inflation target, actual inflation, and the output gap.

• Monetary Policy Committee (MPC) Behavior: The SARB has historically kept policy rates below the level implied by the Taylor rule, but this deviation has been narrowing, especially since H2 2017. The MPC has shown a shift towards more hawkish positioning in response to political risks and economic uncertainty.

• Inflation and Growth Dynamics: Inflation is expected to moderate in 2018, while GDP growth is projected to rise slightly. The output gap is anticipated to close gradually, which may influence the SARB to consider rate cuts in the future.

• Calibration Variations: The document outlines four different calibrations of the Taylor rule, each with varying assumptions about the inflation target, output gap, and real interest rate. These calibrations reflect the complexity and subjectivity involved in applying the rule to South Africa's unique economic context.

Key Calibrations

Calibration 1: Vanilla Taylor Rule

• Equation: $i = r^* + \pi^* + 1.5(\pi - \pi^*) + 0.5y$
• Implication: Under this calibration, the SARB's current policy rate of 6.75% is below the rule's implied level, suggesting potential for rate hikes. However, the SARB has been cautious, especially after the 2017 rate cut.
• Forecast: Policy rates are expected to remain stable at 6.75% through 2018 and 2019.

Calibration 2: Equal Weights to Inflation and Growth

• Equation: $i = r^* + \pi^* + 1.5(\pi - \pi^*) + 1.5y$
• Implication: This version allows for a modest increase in policy rates (up to 25bp) in 2018, but if growth slows, rate cuts could re-emerge.
• Forecast: The current rate of 6.75% is considered adequate, with the possibility of small rate adjustments.

Calibration 3: Higher Inflation Target

• Equation: $i = r^* + \pi^* + 1.5(\pi - \pi^*) + 0.5y$
• Assumption: The inflation target is raised to 5.0% from 4.5%, reflecting the SARB's reluctance to pursue a lower inflation target due to the economic context.
• Implication: A 25bp cut in the repo rate is possible between 2018 and 2019, as the inflation outlook is more contained than previously thought.

Calibration 4: Higher Potential Growth Assumption

• Equation: $i = r^* + \pi^* + 1.5(\pi - \pi^*) + 0.5y$
• Assumption: Potential growth is assumed to be higher (1.5–2.0%) than previously estimated, reflecting the possibility of improved economic conditions under the new ANC leadership.
• Implication: Policy rates could potentially decrease by 50–100bp from current levels, but this is unlikely due to global reflationary pressures and domestic risks.

Key Information

• Monetary Policy Outlook: The SARB is expected to cut the repo rate by 25bp in March and May 2018, ending the year at 6.25%.
• Global Reflation: The Fed and ECB are expected to normalize policy rates in 2018, which may increase funding costs for emerging markets like South Africa.
• Political Risks: The election of Cyril Ramaphosa as ANC leader has reduced political risk premia, but structural issues remain. A VAT hike in the national budget could temporarily increase inflationary pressures.
• SARB Caution: Despite some easing in the policy rate, the SARB is expected to remain cautious, keeping monetary conditions neutral to modestly tight due to the uncertainty surrounding the country's growth trajectory and potential fiscal reforms.

Conclusion

While the Taylor rule provides a useful framework for evaluating monetary policy, it is not the sole determinant. The SARB's decisions are influenced by a range of factors, including global economic conditions, domestic inflation trends, output gap dynamics, and political risks. Based on the analysis, the SARB is likely to continue its cautious approach, with a limited easing cycle expected in 2018, ending at 6.25%. The document emphasizes the importance of considering both domestic and international factors when assessing the SARB's monetary policy stance.