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Standard Bank Group
The SA Daily 15 July 2019

Repo cut priced in

Shireen Darmalingam

  • The South African Reserve Bank’s Monetary Policy Committee will meet this week on monetary policy. Bloomberg consensus is for a repo rate cut of 25 bps, from 6.75% to 6.5%. We concur, as does the FRA market.
  • The SARB has been stressing that the rand exchange rate remains a key risk to the bank’s inflation outlook, which is currently pencilled in to average 4.5% in 2019. We expect inflation marginally lower, at 4.4% this year. The SARB’s CPI forecasts 5.1% in 2020; we expect 4.7% next year.
  • The SARB noted at its May MPC meeting that since the March meeting the rand had gained 1.5% against the USD and 3.1% tradeweighted. Since then, the rand has appreciated by 3% and 2% tradeweighted.
  • We expect the rand, which is still undervalued, to strengthen to R13.80/$ by year-end.
  • The SARB’s growth prognosis has deteriorated at the last MPC meeting. The bank now expects GDP growth of 1.0% for 2019; we expect GDP growth of 0.6% this year. Growth is likely to be dependent largely on consumer spending in the near term.

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