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Standard Bank Group
The SA Daily 19 March 2019

Inflation still benign; rates to stay steady

  • The rand has shed 2.8% since February’s close of R14.07/$ and 8.6% since January’s close of R13.31/$. It is now weaker than its short-, medium- and long-term averages, currently at R14.43/$. This is considerably weaker than our R14.00/$ forecast for end-1Q:19. Since the last SARB MPC meeting in January, it has shed 5.2%, and oil is up 9.3%.
  • We nevertheless expect still benign inflation to edge to 4.2% y/y in February, averaging 4.7% in 2019 and 2020. The SARB will likely keep rates flat at 6.75% (prime rate: 10.25%) at next week’s MPC meeting and also this year. We now also see less chance of a 25 bps hike in 1Q:20.
  • Factoring out both rand weakness and oil price shocks, the risks to SA inflation remain skewed to the downside. Still, we don’t quite yet foresee a rate cut, even with our below-consensus inflation forecast. And, monetary policy is still relatively accommodative.
  • The rand will likely continue trending sideways, faced with the various risks such as the Moody’s review on 29 March, SA general elections on 8 May, renewed and also extreme power cuts by Eskom, slowing global growth, and Brexit.
  • We see the rand as nevertheless still undervalued, yet vulnerable. However, we see it firming to R13.40/$ by year-end premised on constructive economic reforms.

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