SARB MPC rates decision preview and rand price outlook
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 rates announcement?
The South African Reserve Bank (SARB) is set to conclude its Monetary Policy Committee (MPC) meeting on Thursday the 25th of May 2023, and in turn announce changes (if any) to domestic lending rates. The SARB announcement and press conference to follow will take place at 3pm (Thursday).
What to expect from the MPC meeting
Rising food costs, a sudden blow out in the rand, escalating loadshedding and a fragile economy continue to provide a challenging backdrop for the SARB.
March’s inflation reading was higher than expected at 7.1% and marked the second month in a row where the annualized rate had risen. Markets will be closely watching the April reading scheduled for release on Wednesday, ahead of the Thursday rates decision, to see if this rising inflationary trend (led by food inflation) is continuing. The softening rand is doing little to fuel confidence and will no doubt add to pricing pressures. While this will reflect in May figures, dampens the inflation outlook further.
At the last meeting the central bank became decidedly more hawkish raising rates by 50-basis points rather than at the 25-basis point tempo set in the meetings preceding.
Consensus estimates suggest that the SARB will raise the repurchase rate (repo) by 25-basis points, although there is a decent sized probability that the central bank could move 50-basis points instead.
While in search for price stability, higher interest rates are to the detriment of economic growth. In turn a 50-basis point rise (should it occur) might not incur sustainable strength in the ZAR. Rates do however appear to be near the top of the cycle and inflation is expected to temper in the second half of 2023. This could lead to some easing commencing in early 2024.
USD/ZAR
The USD/ZAR long term trend remains firmly up (dollar strength / rand weakness) with the price currently testing the all-time high at 19.50.
Trend followers might consider keeping a long bias to trades, looking for entry on either a break (close) above the 19.50 level, or in the event of a pullback a reversal off one of the labelled support levels. In the event of an upside breakout, channel resistance at 20.20 provides a longer-term upside target for the currency pair.
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