ZAR: SARB expected to keep its policy rate on hold at 7.0% - TDS

Analysts at TDS suggest that today the SARB is expected by us and the unanimous consensus to keep its policy rate on hold at 7.0%. 

Key Quotes

“From the point of view of the inflation outlook things have been going well recently. April CPI inflation, which was released yesterday, was running at 5.3% Y/Y; this is the first time since August of last year that headline inflation has been in the 3-6% target range. The most recent forecast of the SARB was for Q2 inflation to average 5.8%. We would expect the SARB to lower its near-term inflation forecasts today, although the longer-term forecasts, namely that headline inflation will be at 5.5% by the end of 2018, could well be left unchanged.”

“The rand has been performing well, in spite of the sell-off at the end of March caused by Gordhan’s dismissal; since the last MPC meeting the rand is down just 2% on a trade-weighted basis. Nevertheless 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 too quickly, particularly given the forthcoming sovereign rating reviews and the next FOMC meeting, all in June. However, it should be noted that at the March meeting one out of the six MPC members voted for a rate cut, so the probability of a cut today is low, but not zero.”

“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 in the statement today.”