SARB likely to keep benchmark rates on hold at 7 pct

The South African Reserve Bank is set to announce its decision on interest rate during its meeting today. According to a Societe Generale research report, the central bank is expected to keep its benchmark repo rate on hold at 7 percent, a level unchanged since the meeting in March 2016.

South Africa’s headline inflation in recent months has surpassed the central bank’s upper bound target range of 3 percent to 6 percent; however, developments in core as well as headline inflation have tracked the SARB’s forecasts. The fourth quarter headline inflation came in at 64 percent year-on-year in October, 6.6 percent in November and 6.8 percent in December.

The central bank’s forecasts for headline and core inflation indicate a weak, downward-sloping path for prices throughout in 2017, driven by a weak domestic growth outlook, a gradual drop in wage growth, and moderation in food price inflation. According to SARB, the headline inflation is likely to average 5.5 percent year-on-year in the fourth quarter of 2017 from 6.1 percent in the first quarter of 2017, whereas the core inflation is expected to slow down to 5.4 percent in the fourth quarter from 5.6 percent in the first quarter of 2017.

Meanwhile, the South African rand is anticipated to show a strong tone after the central bank’s statement today. While U.S. policy uncertainty is still high and the SARB is expected to keep a slightly hawkish tone in the MPC statement today in conveying the upside risks to its inflation outlook, the SARB is believed to be comforted by recent developments in  the markets, stated Societe Generale.

“The Council is likely to re-convey the sentiment from the November meeting that although it believes the hiking cycle is nearly finished, it reserves the right to revise this opinion”, added Societe Generale.