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Standard Bank Group
The SA Daily 18 September 2019

Expectations only loosely anchored

  • The SARB MPC will have at its disposal tomorrow the BER Q3:19 inflation expectations when deciding on rates. SARB policy has long been set on anchoring inflation expectations around the 4.5% midpoint of the inflation target in the interest of both balanced and sustainable growth.
  • Indeed, inflation expectations, after spending too much time around the 6% upper band, have since end 2017 been gravitating towards the 4.5% midpoint. Current year inflation expectations measured 4.8% in Q2:19, one-year ahead expectations 5.0%, and two-year ahead 5.2%. However, inflation expectations are not yet firmly anchored.
  • SARB monetary policy stance is still accommodative, and future monetary policy conduct will remain data-dependent. Inflation outcomes have been subdued, around the midpoint, reflecting ongoing domestic demand weakness. This, and the expected further global monetary policy easing, should give the bank scope for further rate cuts.
  • However, right now a rate cut is likely being ruled out by rand-negative, and therefore potentially inflationary, near-term risks. At the July MPC meeting, the SARB’s implied starting point for the rand was R14.30/$, and the quarterly projection model (QPM) assessed the rand as slightly undervalued. The rand has however clearly departed from that level, to above R15.00/$ in August; it is around R14.75/$ now.

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