South Africa's SARB seen hawkish, but on hold

The South African Reserve Bank (SARB) is expected to hold its repo rate steady at 5.75% on Thursday. However, higher oil prices, a deteriorating domestic food-price outlook and the probability of higher-than-expected electricity tariff hikes all suggest an upward revision to the SARB's inflation forecasts. 

With a weak base in Q1-2015, a the 3-6% inflation target could be breached in Q1-2016. The SARB will not tighten on auto-pilot. Given weak growth, a temporary inflation-target breach would likely be accommodated.

But with risks to the South African rand (ZAR) likely to be magnified ahead of any Fed tightening, and inflation risks likely to be sustained, a rate hike is expected at the July Monetary Policy Committee meeting. 

"We expect the SARB to sound hawkish now, and to tighten pre-emptively in July",said Standard Chartered in a perot on Wednesday.