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Standard Bank Group
The SA Daily 19 November 2018

No hike foreseen

  • This Thursday marks the final 2018 monetary policy committee (MPC) meeting of the South African Reserve Bank (SARB). At the last meeting in September, although MPC members kept rates on hold, they had voted at a 4-3 split for holding vs. hiking. At that time, the SARB noted that the inflation outlook had “deteriorated” and that risks were “rising and biased to the upside”. Here, the weaker rand and higher oil prices played a role. Further, the SARB’s quarterly projection model (QPM) reflected 5x25 bps rate hikes by end-2020, implying a hawkish outlook for rates.
  • In September, oil prices were at $80/bbl; now, oil is at $67/bbl (down16%). The volatile rand, due to both local and external risks, shed 3.8% to the dollar in October alone but remains in a similar range as at the September meeting; acutally, it is a little stronger.
  • Lower oil prices and a stronger rand have seen inflation expectations (as measured by breakeven inflation rates) pull back slightly, with the 5yr rate still below 6%. Relatively benign inflation expectations, and the weaker local growth backdrop, supports our view for the SARB pausing before hiking rates. We therefore expect no rate hike on Thursday.

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