Rand price weaker ahead of SARB rates decision
In this article we preview the SARB MPC rates meeting and take a look at how the rand is trading into the event.
When is the SARB MPC rates decision?
The South African Reserve Bank (SARB) concludes its Monetary Policy Committee (MPC) meeting on Thursday the 6th of January and is scheduled to announce changes (if any) to local lending rates at around 3pm.
How much will the SARB raise rates by at the MPC meeting?
Consensus estimates suggest that another 50-basis point (0.50%) hike to the repurchase rate (repo) is likely, although a slightly less hawkish view places a decent sized probability of a 25-basis point (0.25%) hike instead. The SARB has been keeping pace with monetary policy internationally to try to stem capital outflows and maintain some carry trade opportunity as well.
US rates
The US Federal Reserve has started to slow its tightening pace, having moved rates by 50-basis points in December rather than the 75-basis point (0.75%) increments witnessed for preceding rate hikes. The suggestion is that the central bank will move to raise lending rates by 25-basis points (0.25%) at the next committee meeting on 1 February 2023.
This furthers some suggestion that the SARB will also slow from its 75 basis point increments witnessed last year, to 50-basis point and perhaps 25-basis points at its current and next meetings respectively.
Inflation
Consumer Price Index (CPI) data for December showed continued price pressures in South Africa with an annualized inflation reading of 7.2%. The figure was however a slight downturn from the 7.4% November figure. Inflation continues to trade firmly above the 6% targeted ceiling of the Reserve Bank.
The above graph highlights the uptrend in the headline CPI index (left axis) and annualized inflation rate (right axis).
Expectations are that inflation is likely to only return to within the 3% to 6% targeted band in the second quarter of 2023 (at best).
USD/ZAR – Technical view
The USD/ZAR rebound from oversold territory has seen the 17.40 resistance target tested. A retracement back to the 200-day simple moving average (blue line) looks to have ended as the USD/ZAR price tracks higher once again.
17.40 and 17.70 are respective upside resistance targets from the move. Traders who are long might consider using a close below 17.05 as a stop loss indication for the trade.
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