Rand trading weaker after a dovish SARB

The South African Reserve Bank has kept lending rates unchanged (as expected) at the end of the Monetary Policy Committee (MPC) meeting.

Source: Bloomberg

The South African Reserve Bank (SARB) has kept lending rates unchanged (as expected) at the end of the Monetary Policy Committee (MPC) meeting. The decision was however not unanimous, with two of the five MPC members voting for a 0.25% cut in lending rates. Lower revisions on the GDP and inflation forecasts, have set a more dovish tone to the meeting with the suggestion that lending rates could be cut by 0.25% before the end of the first quarter in 2020.

A summary of the GDP and Inflation forecasts by the SARB are as follows:

Gross Domestic Product (annual)

  • Estimated growth of 1% in 2019, revised lower from previous forecast (1.3%)
  • Estimated growth of 1.8% in 2020, unchanged from previous forecast
  • Estimated growth of 2% in 2021, unchanged from previous forecast

Headline Inflation expectations

  • Headline CPI expected to average at 4.5% in 2019, revised lower from 4.8% previously forecast
  • Headline CPI expected to average at 5.1% in 2020, revised lower from 5.3% previously forecast
  • Headline CPI expected to average at 4.6% in 2021, revised lower from 4.7% previously forecast

The Rand

The rand has underperformed its BRIC (Brazil, Russia, India & China) currency counterparts following the dovish comments from the Reserve Bank. Emerging market currency weakness in general has followed a risk off narrative as trade tensions between the US and China persist and threaten to disrupt the pace of global economic growth.

USD/ZAR

The long-term trend for the USD/ZAR remains sideways, as the currency pair continues to trade within a broad range. In the short term however, we have seen the USD/ZAR breaking the downtrend (dotted line) and now moving back towards resistance at R14.60/$. A break of the R14.60/$ level would see the R14.80/$ level as a further upside resistance target.


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