SARB to hike repo rate by 50 bps in July meet

Standard Chartered notes...

• We expect the SARB to hike the repo rate 50bps at its July MPC meeting, although an earlier rate move is plausible, given market expectations of Fed tightening, the stronger US dollar (USD), and stepped-up pressure on the ZAR. 
  
  
• On balance, we favour a rate hike at the July MPC meeting (rather than March, where we see a modest risk of a rate hike, or May, where risks are likely to be more evenly balanced). There are two main reasons for this.
  
  
• First, pass-through from ZAR weakness into inflation remains below the 0.2 coefficient often assumed in SARB models. To date, inflation has not risen as fast as the SARB might have anticipated, perhaps because of weak demand conditions in South Africa, From this perspective, there is little reason to accelerate rate tightening, even if the ZAR is pressured.
  
  
• Second, although USD-ZAR touched a high of 12.5252 in the last week, EUR-ZAR has moved lower, not higher. In trade-weighted terms, the ZAR remains stronger than it was in early 2014, when the SARB raised its repo rate an unexpected 50bps in response to global FX volatility. While the SARB remains in a normalisation cycleitself, it nonetheless wishes to proceed gradually with its own tightening, given still weak growth conditions in South Africa.