SARB seen ‘on hold’ this week – TDS

FX Strategists at TD Securities expects the SARB to keep its monetary policy unchanged at its meeting on Thursday.

Key Quotes

“On Thursday in South Africa the SARB is expected by us and the unanimous consensus to keep its policy rate on hold at 7.0%”.

“From the point of view of the inflation outlook things have been going well recently. CPI inflation averaged 6.3% in Q1, a bit below the SARB’s forecast of 6.4%. Furthermore, the consensus is looking for inflation to fall to 5.6% Y/Y in April, bringing it back into 3-6% target range. Core inflation has been performing well, running at 4.9% in March. The main concern for the SARB regarding the inflation outlook remains the rand, which could suddenly sell-off on negative political developments and/or further rating downgrades. This will cause the SARB to tread cautiously and refrain from cutting rates immediately, although it should be noted that at the March meeting one out of the six MPC members voted for a rate cut”.

“The March statement ended with “The MPC is of the view that we may have reached the end of the tightening cycle. However the Committee would like to see a more sustained improvement in the inflation outlook before reducing rates.” We would expect somewhat more dovish language this week”.