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The SA Daily 18 July 2019

Rate cut priced in

Shireen Darmalingam

  • The South African Reserve Bank will decide on rates this afternoon; a cut of 25 bps, to 6.5%, is priced in. In addition, the money market expects a further cut in September. Recall, the bank hiked the repo rate by 25 bps in November 2018.
  • The bank’s MPC statement in May stated that rate changes would remain data-dependent. Data since then, as well as the bank’s growth and inflation forecasts, therefore seem to warrant a rate cut today.
  • In May, the SARB downwardly revised inflation and growth forecasts, with CPI to average 4.5% in 2019 (previously 4.8%) and 5.1% in 2010 (previously 5.3%) and 4.6% in 2021 (previously 4.7%). These revisions were due to softer food prices and a low oil price average in the bank’s model. GDP growth forecasts too were trimmed, to 1.0% in 2019 (previously 1.3%). GDP growth is forecast at 1.8% in 2020 and 2.0% in 2021.
  • Since May, the rand has firmed 3%, and 2% trade-weighted, making it less of a threat to inflation. Our year-end target is R13.80/$. The rand is now within the R13.30/$ to R14.30/$ fair value range. The stronger rand too supports the case for a cut. 

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