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Closing the loop 19 May 2022

Closing the loop

Shireen Darmalingam

Market highlights:

  • The rand is stronger at R15.85/$ (R16.01/$*) today; it ranged between R15.76/$ and R16.10/$.
  • The currency is above its 50-day, 100-day and 200-day moving averages (R15.24/$, R15.30/$ and R15.24/$).
  • EM currencies are mixed today; the RUB (+4.9%), ZAR (+1.0%) and CLP (+1.0%) are the biggest gainers; the KRW (-0.8%), IDR (-0.3%) and ARS (-0.3%) are the biggest losers.
  • The ECB MPC meeting minutes released today noted that policymakers are concerned about high inflation.
  • Several policymakers viewed it important to act without delay in order to demonstrate the bank’s commitment to ensure price stability.
  • They viewed that the current accommodative monetary policy stance “was no longer consistent with the inflation outlook”.
  • Others noted that adjusting policy too aggressively could “prove counterproductive”.
  • Locally, the SARB hiked the repo rate by 50 bps to 4.75%; 4 members preferred a 50 bps increase while 1 member preferred a 25 bps increase.
  • The bank expects CPI to average 5.9% (previously 5.8%) in 2022 while CPI in 2023 is expected at 5.0% (from 4.6%) and 4.7% (previously 4.6%) in 2024.
  • The bank assesses the risks to inflation to be to the upside.
  • Higher food and oil prices are the main drivers of the upward revision to the CPI forecasts; the bank sees fuel inflation easing in 2023 while food prices are expected to remain high.
  • GDP is pencilled in at 1.7% (previously 2.0%) in 2022; 1.9% (previously 1.9%) is pencilled in for 2023 and 1.9% (previously 1.9%) for 2025.
  • Short-term factors such as the flooding in KZN and loadshedding uncertainty have been the main drivers of the downward revision to growth.
  • Other infrastructure and policy constraints could also pressure growth.
  • The risks to the growth outlook are assessed to be balanced; financing conditions, however, remain tight.
  • The output gap is unchanged in the forecast period and is expected to turn positive in Q3:23.
  • In this uncertain environment future policy changes are likely to be data dependent and sensitive to the balance of risks to the outlook.
  • The MPC will continue to look through temporary shocks and concentrate on second-round effects and the risk of de-anchoring inflation expectations.
  • The bank’s QPM model indicates gradual normalisation through to 2024.
  • The governor noted that the QPM remains a broad policy guide which changes from one meeting to the next in response to new data and risks.
  • The bank further noted that economic and financial conditions are expected to remain more volatile for the foreseeable future.
  • Stage 2 loadshedding will be implemented from 17h00 until 22h00 due to capacity constraints.
  • The oil price is down by 0.3% today, and up by 39.9% in the year-to-date.
  • The gold price is up by 1.3% today, and up by 1.2% in the year-to-date.
  • Brent crude oil is at $108.78/bbl ($109.11/bbl*).
  • Gold price is at $1843/oz ($1820/oz*). 
  • SA CDS is at 284bps (267bps*), Brazil 251bps (244bps*), Turkey 733bps (710bps*).
  • Yields: US 10yr at 2.80% (2.88%*), German bund at 0.93% (1.03%*) and SA 10-year generic at 10.35% (10.40%*), SA’s R186 is at 8.32% (8.36%*).
  • The JSE ALSI is down by 1.3% today (-0.9%*).

* Denotes yesterday close. 

Key events and data:

  • 01h01: UK GfK consumer confidence (May)
  • 01h30: Japan CPI (April)
  • 08h00: UK retail sales (April)
  • 13h00: Eurozone consumer confidence (May)

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