Rand report: inflation data supports another SARB rate hike
The South African Reserve Bank is expected to increase lending rates again amidst persistent inflation
When is the SARB MPC rates decision?
South African Reserve Bank (SARB) concludes its Monetary Policy Committee (MPC) meeting on Thursday the 24th of November 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 another 75-basis point (0.75%) hike to the repurchase rate (repo) is likely. Aggressive global monetary tightening amidst persistently high inflation begets our local central bank following suit. The SARB has been keeping pace with monetary policy internationally to try stem capital outflows by maintaining some carry trade opportunity.
Inflation
Consumer Price Index (CPI) data for October showed continued price pressures in South Africa with an annualized inflation reading of 7.6%. The figure was a slight uptick from the previous months annualized reading of 7.5%. 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).
Persistent price pressures are unlikely to abate soon. 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). Supply chain disruptions (from Chinese lockdowns) and the ongoing war present further risks to the timeline of inflation normalization.
Growth
Floods, inflation, and ongoing power constraints have provided negative headwinds for domestic growth this year. A contraction in Q2 2022 GDP (Gross Domestic Product) if followed through with a contraction in the third quarter GDP would suggest a technical recession in South Africa. At the very least if growth is realized in Q3 2022 it is likely to be slow, most likely inhibited by weaker key export prices and persistent loadshedding over the period.
USD/ZAR – Technical view
The short to medium term trends for the USD/ZAR remain down while the longer-term trend remains up. The currency pair also trades in oversold territory right now. The ambiguity of technical signals makes trade difficult right now.
We consider a near term range between levels 17.15 (support) and 17.50 (resistance). For a new directional bias, we now wait for a breakout in either direction with a confirmed close above or below the aforementioned levels.
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