SARB set for January rate cut amid contained inflation
The South African Reserve Bank is poised to cut interest rates by 25 basis points at its January meeting, though the pace of future cuts may be influenced by U.S. monetary policy shifts.
Key takeaways:
- A 25 basis point cut is expected at the January 30th meeting, though the pace of monetary easing thereafter could slow
- South African inflation has dropped below the SARB's target band to 3%, with projections showing modest increases to 3.5% in 2025 and 4.6% in 2026.
- Shifting expectations for fewer Fed rate cuts in 2025 could influence SARB's policy path
- The Forward Rate Agreement curve is only pricing in one 25bp cut this quarter
- The USD/ZAR currency pair is trading in a short-term range between R18.30-R18.85
When is the SARB rates decision and what can we expect?
The South African Reserve Bank (SARB) is expected to implement a 25 basis point interest rate cut at its January 30th meeting, though the pace of cuts is likely to slow through 2025. The bank's next cut isn't anticipated until at least July.
The outlook is influenced by shifting U.S. monetary policy expectations, with markets now pricing in fewer Fed rate cuts for 2025.
South Africa's inflation remains well-contained, falling to the lower end of the SARB's 3-6% target band in December. Projections suggest inflation will average 3.5% in 2025 and 4.6% in 2026. While the Forward Rate Agreement (FRA) curve has priced in one 25bp cut this quarter, it shows limited expectations for further cuts. The potential for fewer U.S. rate cuts than initially expected poses a risk to South African monetary policy, though decisions will ultimately depend on domestic inflation trends.
USD/ZAR – technical analysis view
In the short term we are seeing the USD/ZAR starting to reverse off the 18.85 level. A very short term range is now assumed between levels 18.30 (support) and 18.85 (resistance).
The long term trend for the currency pair remains up reinforcing a long bias to positions.
For new long entries, traders might prefer to see a break of the 18.85 level before targeting a move towards the resistance range between levels 19.20 and 19.40. In this scenario, a close below the one or two day low might be used as a stop loss indication.
Should weakness ensue, traders might wait for the price to settle and produce a bullish price reversal at either the 18.30 level or 200 day simple moving average (blue line).
Should the price instead move to close below the 200MA, our long bias to trades would need to be reassessed.
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