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The South African Reserve Bank (SARB) concludes its Monetary Policy Committee (MPC) meeting on Thursday the 22nd of November. At September’s MPC meeting, it was noted that three of the four members voted to increase lending rates by 0.25%. The rand, while having stabilized in the short term, remains around 13% weaker year to date (against the US Dollar). The SARB has also been more hawkish in recent communications and in turn there has been some speculation that the central bank may hike interest rates to align itself with global market trends (both in developed and emerging markets). While South Africa remains in a technical recession, monetary policy at present is still considered to be accommodative suggesting some room to tighten.
The base case scenario is however that the SARB will keep lending rates unchanged at the MPC meeting. The SARB’s inflation forecasts have been revised lower at the last few meetings. The recent sharp decline in oil (which has been the largest inflation input) is likely to see further downward revisions on the inflation outlook. There is also an unspoken suggestion that political will may influence a decision to keep rates low as we move into the election period. Economic growth remains weak in South Africa and the SARB while remaining cognate of growth has a mandate more geared towards inflation targeting. In any case, both the levels of domestic growth and inflation would support the view that lending rates will remain unchanged at this month’s meeting.
The Rand (USD/ZAR) – Technical View
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