SARB MPC preview and rand price forecast

When is the next SARB MPC meeting?

The South African Reserve Bank (SARB) is set to convene for its three day Monetary Policy Committee (MPC) meeting on the 19th of July 2022. The conclusion thereof and subsequent rates announcement is scheduled for 3pm on Thursday the 21st of July 2022.

Will the SARB raise rates at the meeting?

The Reserve Bank is expected to continue its trend of tightening monetary policy at the conclusion of the MPC meeting. Consensus estimates (Refinitiv) suggest that rates will rise by another 50 basis points (0.5%) in July. This will move the repurchase rate (repo) to 5.25% from 4.75% and the prime lending rate to 8.75% from 8.25%.

Inflation & GDP outlook

The outlook for inflation will likely be revised higher from the 5.9% SARB projection at its last meeting. The impact of the ongoing Russia / Ukraine war on energy and food prices is now starting to be felt at home with May’s Consumer Price Index (CPI) reading of 6.5%, a breach of the Reserve Banks 6% ceiling target. Recent US CPI data has shown that global inflation continues to rise, not having managed to turn the corner just yet. A revised projection closer towards the 6.3% from the SARB is now possible for 2022.
Despite a better than expected first quarter of economic growth, second quarter growth is likely to be negatively impacted by the floods in Kwazulu-Natal and its effects on manufacturing and infrastructure. Since the last (Q1 2022) Gross Domestic Product (GDP) print we have seen month on month contraction in the mining and manufacturing sectors. Key export commodity prices such as base and precious metals have come down considerably since the first quarter and will weigh on GDP. Economic growth this year is also likely to be adversely impacted from what is already been a prolonged shortage of electricity production, noted by the aggressive loadshedding schedule business has had to endure in 2022. In turn we expect a slight downward revision for growth in 2022 from the Reserve Bank’s 1.7% year on year forecast at its last meeting in May.

The rand

For the year to date the rand has been able to strengthen against the Euro and British pound, although remains at the mercy of a strengthening US dollar.

Currency movements against the majors are a reflection of the pace of monetary tightening, with the US Federal Reserve Bank the most hawkish and the European Central Bank (ECB) the least aggressive of these central banks right now.

USD/ZAR – Technical view (daily chart)

The USD/ZAR currently trades in overbought territory with the most recent candles showing some indecision at current levels. The longer term trend does however remain up.

Our preference is to look for long entry into a pullback from overbought territory. 16.65 provides the initial support target should a pullback start to be realised. It is from this level where we would be looking for a bullish price reversal to reenter long. Should this level instead be broken before a reversal is formed, we would again look to our lower levels of support at 16.50 and 16.20 for long entry (on a bullish price reversal).

We are not looking to short the suggestion of a pullback but rather looking to buy into any weakness should it occur.