Avery long time ago, when SA's inflation targeting policy was in its infancy, I was summoned with a Business Day colleague to the office of the eighth governor of the Reserve Bank (as he likes to be styled), Tito Mboweni. We came out of the meeting with a front-page story about the governor signalling that things had changed since the previous meeting of the Bank's monetary policy committee (MPC) - which suggested the market might have it wrong about what the committee would decide at its next meeting.
I can't remember what the economists' forecasts had been; the point was that Mboweni took the trouble to manage expectations. Times have changed and the Bank surely wouldn't do it that way now. But successive governors have worked hard, since SA's introduction of inflation targeting two decades ago, to improve communication and make monetary policy ever more transparent and predictable - the essence of good monetary policy. The fact that this week's interest rate cut - while welcome - came as such a surprise to the market is a concern, raising questions about Bank communications.
Of the 19 economists surveyed by Bloomberg ahead of this week's meeting, only three expected a rate cut. True, the inflation numbers had got even better and the growth numbers even worse since the committee's previous meeting in November. But the committee had previously declined to cut even though inflation forecasts were well within the target range and growth was getting weaker. It had taken pains to highlight the risks, to the rand and inflation, of a bad February budget and a looming Moody's downgrade as well as the risks in the global environment. And if its take on these had changed, nobody knew about it since the governor and his deputies hadn't appeared on public platforms or been in the media over the festive season.
Perhaps they should have found some opportunities to signal a possible shift in thinking. They will surely already have had wind well before the meeting that the Bank's inflation forecasts were looking unexpectedly benign. And if their take was that the global risk environment was looking a little more comfortable for SA - as this week's statement suggested - that surely wasn't brand new.
January is always a difficult one - this is not the first time the market has been surprised by a January rate decision, and while the economists might have been caught out, the traders were less so, with Forward Rate Agreements before the meeting pricing about a 40% probability of a rate cut.
Not that MPC decisions can or should ever be entirely predictable. Some committee members tend to be more hawkish or more doveish, but they will all tell you their views can and do shift during the meeting. Why else sit there and argue for three days? This time the decision was unanimous. The lower inflation outlook helped tip the decision, with inflation now expected to average just under the 4.5% mid-point of the target range over the period 2019-2022. And that's even with the risks to the rand and inflation posed by the fiscal and Moody's and global issues. The global environment was the other big factor, with the committee now seeing less of a risk that SA's idiosyncratic issues would be worsened by a hostile world. That meant there was a small space for a cut. Which means, presumably, that we shouldn't assume this is the start of a cutting cycle.
Whether all that is clear from the committee's statement is a big question. The statements have lately got shorter and less data heavy, but not necessarily better. And in an environment in which the Bank has come under heavy pressure to cut rates from both populist politicians and populist economists, sound communications are particularly important if the Bank is to make it clear that the cut was about the data, not about capitulating to pressure.
• Joffe is contributing editor
