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The SA Daily 25 March 2019

SARB likely steady on rates

Shireen Darmalingam

  • The SARB on Thursday will decide on monetary policy. Bloomberg consensus is for the repo rate to be kept unchanged at 6.75%, in line with our view.
  • We also expect the SARB to keep rates on hold this year. The FRA market, however, is pricing in a cut in the next 12 months.
  • The SARB noted at its January Monetary Policy Committee (MPC) meeting the exchange rate remaining a key risk to the inflation outlook, adding that since the last meeting in November, the rand had gained 1.4% against the US dollar and lost 0.5% on a trade-weighted basis. Since this meeting, the rand has depreciated by 4.8% and near 5.3% on a trade-weighted basis.
  • However, we believe that rand weakness induced by SA-specific events, such as power cuts, the pending much awaited ratings review by Moody’s this Friday as well as national elections in May, should fade. Therefore, we see the SARB keeping rates steady this year. We expect Moody’s to keep SA’s sovereign rating unchanged, at investment grade.
  • We will nevertheless watch out for revisions in both the SARB’s growth and inflation forecasts. In the wake of rolling black-outs, we now see more downside risks to these forecasts. The SARB’s GDP growth forecast is currently 1.7% for 2019 (our forecast is 1.3%), and CPI at 4.8% for 2019 (our forecast is 4.7%).

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