SARB Rates Decision & ZAR Trading View
The rand has continued to strengthen following the outcomes of both local and international Monetary Policy meetings
SARB decision and revised forecasts
The South African Reserve Bank (MPC) has kept lending rates unchanged at the conclusion of the Monetary Policy Committee (MPC) meeting on Thursday (17 September 2020). The decision was in line with the majority of estimates, although a number of analysts (including this one) had expected a possible 25 basis point cut in the repo rate. The decision not to cut was certainly not unanimous with policymakers having voting three to two in lieu of keeping rates on hold.
Following the 51% contraction in second quarter Gross Domestic Product (GDP), the SARB now expects an economic contraction of 8.2% in 2020. This is a downward revision from July’s forecast of a 7.3% economic contraction this year. GDP is then expected to recover and grow by 3.9% in 2021 and 2.6% in 2022.
Inflation is now forecast at 3.3% for 2020, 4% in 2021 and 4.4% in 2022.
The Rand
The rand has continued to strengthen post the local MPC meeting, although movements have been largely guided by international monetary policy announcements by the Federal Reserve Bank in the US and Bank of England.
Dollar weakness
The dollar has seen a knee jerk reaction against a broad range of currencies after the Federal Open Market Committee (FOMC) maintained a dovish stance at its monetary policy meeting, keeping lending rates in the world’s largest economy unchanged at the 0% to 0.25% range. The central bank indicated that interest rates in the US are likely to remain near zero and rates would likely stay accommodative for at least the next three years. US Policy makers have also indicated that interest rates would only start to move once the US achieves maximum employment and inflation reaches 2%.
USD/ZAR Trading view
The USD/ZAR is now trading below the R16.35/$ level which has acted as support for the currency pair since June this year. The move is in line with the breakout scenario posted in our previous note and Technical Tuesday newsletter. The move lower now sees R15.80/$ as the next possible downside target from the move. Traders who are short might consider using a close above today’s high (17 September) as a stop loss consideration for the trade.
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