The SARB is expected to hike 25bp in January (with risks of a 50bp move) and see the policy rate at 7.25%-7.50 by end- 2016 with GDP growth at 1.2%y/y, modestly softer than this year. In the near term, strict fiscal control and higher inflation and interest rates could exacerbate weak growth dynamics, South Africa's main economic challenge. 

The rand has pared some of its earlier losses but at 15-15.20 to the USD is still weaker than the 14.00-14.30 trading range during the November MPC meeting due to both global as well as idiosyncratic developments. While the forecasts had embedded further FX weakness to around these levels, the move is expected to occur over the course of 2016, rather than to be front-loaded. Inflation is expected to peak at 7% in 4Q16 (6.6% previously), and average 6.4% in 2016 and 2017 (6.1% and 5.9%).