SARB rates preview and look at the ZAR

When is the SARB rates announcement?

The South African Reserve Bank (SARB) concludes its September Monetary Policy Committee (MPC) meeting on Thursday the 17^th of September and with it comes this quarters lending rate review.

What is the expected outcomes of the MPC meeting?

After the considerably larger than expected drop in GDP (-50.1% year on year) for the second quarter, the SARB is going to have to revise their forecasts for growth lower (previously -7.3% for FY20). Inflation has also moved to multi decade lows and below the midpoint of the 3% to 6% range targeted by the Reserve Bank.

With this in mind it is highly possible that the conclusion of the MPC meeting could see rates cut by 25 basis points (this is the IG house view) in a further attempt to stimulate both inflations and growth within the country. A poll by Thomson Reuters (of 25 economists) does however show that 15 economists expect lending rates to remain unchanged, while 10 expect a 25 basis point (0.25%) cut to the repurchase and prime lending rates.

The Rand

The rand has been strengthening as we lead into the MPC meeting, however the strength seen can be attributed mainly to improved short term risk appetite and a general weakening of the US dollar. The dollar weakness has also manifested as we lead into the US Federal Open Market Committee (FOMC) meeting on Wednesday evening, where markets will be looking for further detail on the recently announced change (currently considered more dovish) in the central banks economic mandate.

USD/ZAR Trading view

The below chart shows how the USD/ZAR pair is now moving towards support of the medium term trading range between levels R16.35/$ and R17.80/$ which has been in place since June this year.

Breakout traders might hope for a close below range support at R16.35/$, before targeting a move towards the next level of support considered at the R15.80/$ level. The breakout scenario is preferred if its occurrence is post the SARB meeting on Thursday. In this scenario the stop loss placement may be a bit more subjective, although if an aggressive move below support does ensue, a close back above this level might consider the failure thereof.

Range traders might hope for a bullish candle stick reversal before the R16.35/$ level before targeting a move back to near term resistance at R17/$. In this scenario, a close below the reversal low might be used as a stop loss consideration for the trade. We would however prefer to see this confirm after the SARB meeting on Thursday before taking action.