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The SA Daily 23 May 2019

Repo rock steady

Shireen Darmalingam

  • The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) will decide on monetary policy today. We expect the repo kept unchanged at 6.75%, per Bloomberg consensus. Under scrutiny however will be the MPC statement for changes to the bank’s economic growth and inflation trajectories.
  • Corroborating our view for a steady repo this year was yesterday’s April CPI of 4.4% y/y. Core CPI too undershot expectations, at 4.1% y/y. Food inflation was unchanged in April while fuel inflation increased.
  • We expect inflation to average 4.7% this year and next. With prices coming in softer than projected, the SARB seems set to stick to its current stance.
  • For a cut, at this stage, we believe that the central bank would need confirmation of a further slowdown in economic activity as well as inflation retreating more significantly.
  • Note that financial markets, however, have been pricing in a cut over the next 12 months with a rising probability.
  • The bank has consistently pointed out that future policy adjustments would be data-dependent, with the focus on anchoring inflation expectations closer to the mid-point. This too supports our view for flat rates this year.

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