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The USD/ZAR currency pair is expected to head towards a level of 14.0 over the coming quarter, owing to lower interest rates in the economy. The South African Reserve Bank (SARB) is scheduled to meet today for a monetary policy decision: the majority of analysts expect 25 basis points cut to the benchmark rate today, Commerzbank reported.
CPI data showed yesterday that inflation moderation continues on the back of a relatively stable exchange rate and well-behaved commodity prices. SARB's core inflation measure softened to 4.6 percent y/y in August.
Since the MPC voted for a cut last time and there has been no major hawkish development since it makes sense to assume that policymakers may want to get their easing done sooner in the year rather than later when the impact of Fed rate hikes and tapering announcement by the ECB could end the EM-supportive risk environment.
Today's decision is not without any risk, though: rand volatility measures have shot up sharply in recent days. This may have to do with domestic political developments. It is possible that SARB could wait for a quieter moment to cut interest rates; but on balance, we place a high probability on a rate cut today.
"We forecast one more rate cut this year, which would bring the policy rate to 6.5 percent. Therefore, a cut today would be wholly consistent with our view," the report added.
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