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The SA Daily 16 January 2020

SARB expected to stay put

Shireen Darmalingam

  • The Reserve Bank’s monetary policy decision is due out this afternoon. Bloomberg consensus sees the repo rate unchanged at 6.5%.
  • The SARB’s growth prognosis has deteriorated since the November meeting. The Reserve Bank expects GDP growth of 1.4% for 2020, from its previous meeting when growth was estimated at 1.5%.
  • We expect GDP growth of 0.8% this year, dependent largely on consumer spending. Consumer spending has been supported partly by real income growth from benign inflation, with CPI expected at 4.4% in 2020, as well as still modest growth in credit extension. The markets will keep a close eye on the SARB’s inflation outlook for this year and next. The central bank estimated that inflation will likely average 5.1% y/y in 2020. We expect the bank to trim both GDP and inflation forecasts.
  • The SARB has often stressed that the rand exchange rate remains a key risk to the bank’s inflation outlook. It said in November that since its September meeting, the rand had weakened against the USD, albeit slightly, by 0.6%. Since then, though, the rand has appreciated by 3% and 1.6% on a trade-weighted basis. We expect the rand to end the year at R14.60/$.
  • We expect a repo rate cut of 25 bps in 2020, likely only after key events such as the February Budget and the Moody’s ratings review in March.

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