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Standard Bank Group
The SA Daily 16 October 2018

Still tight financial conditions

  • The Standard Bank Financial Conditions Index (FCI) monitors SA financial conditions, serving as a leading indicator for near-term economic activity. At the beginning of Q3:18, financial conditions in SA had deteriorated to -0.6 pts in July, from -0.3 pts in June. In August, financial conditions remained tight, with the FCI remaining at -0.6 pts.
  • Financial conditions will likely remain tight due to higher fuel prices (and high oil prices), the weaker rand, sustained house price growth weakness, and a volatile stock market due to rising risk aversion.
  • A key downside risk to a weaker FCI is the South African Reserve Bank (SARB) hiking rates. While the next rate move by the SARB will likely be up, we still see reasonably well anchored inflation expectations and low underlying inflation pressures as containing the pace of hikes. There is a meaningful risk of a 25 bps hike at either of the next two monetary policy committee meetings; however, over the next 12 months we still expect flat rates. Here, the trajectory of oil prices could play an important role (see our reports FCI flat in August of 09 October by Thanda Sithole, and Stalling of 15 October by Elna Moolman).

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