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The SA Daily 10 July 2018

Rates to stay steady

Shireen Darmalingam

  • The SARB will meet next week on interest rates.
  • The money market has become less hawkish over the past week, still seeing one rate hike this year but being less certain about one in H1:19. Not everyone agrees that current rand weakness will push inflation above the target for a sustained period, given the relatively low pass-through and generally benign inflation setting. Even with a moderate target breach, only some investors believe that the SARB will hike rates, given the downside economic growth risks.
  • We see a hike next week as highly unlikely but it could happen at the September MPC meeting —unless the rand has recovered by then.
  • The SARB maintains that the exchange rate is a key risk to the inflation outlook; the rand has weakened since the March MPC meeting. We see the rand recovering to R12.70/$ by year-end. If so, interest rates should remain steady for the next 12 months.
  • However, if the rand and oil prices remain at their current levels, inflation forecasts could deteriorate sufficiently to compel monetary policy tightening (see Some rand and bond gains of 9 July 2018, by Elna Moolman).

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