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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Rand report: inflation data supports another SARB rate hike

The South African Reserve Bank is expected to increase lending rates again amidst persistent inflation

Source: Bloomberg

When is the SARB MPC rates decision?

South African Reserve Bank (SARB) concludes its Monetary Policy Committee (MPC) meeting on Thursday the 24th of November and is scheduled to announce changes (if any) to local lending rates at around 3pm.

How much will the SARB raise rates by at the MPC meeting?

Consensus estimates suggest another 75-basis point (0.75%) hike to the repurchase rate (repo) is likely. Aggressive global monetary tightening amidst persistently high inflation begets our local central bank following suit. The SARB has been keeping pace with monetary policy internationally to try stem capital outflows by maintaining some carry trade opportunity.

Inflation

Consumer Price Index (CPI) data for October showed continued price pressures in South Africa with an annualized inflation reading of 7.6%. The figure was a slight uptick from the previous months annualized reading of 7.5%. Inflation continues to trade firmly above the 6% targeted ceiling of the Reserve Bank.

Source: StatsSA
Source: StatsSA

The above graph highlights the uptrend in the headline CPI index (left axis) and annualized inflation rate (right axis).

Persistent price pressures are unlikely to abate soon. Expectations are that inflation is likely to only return to within the 3% to 6% targeted band in the second quarter of 2023 (at best). Supply chain disruptions (from Chinese lockdowns) and the ongoing war present further risks to the timeline of inflation normalization.

Growth

Floods, inflation, and ongoing power constraints have provided negative headwinds for domestic growth this year. A contraction in Q2 2022 GDP (Gross Domestic Product) if followed through with a contraction in the third quarter GDP would suggest a technical recession in South Africa. At the very least if growth is realized in Q3 2022 it is likely to be slow, most likely inhibited by weaker key export prices and persistent loadshedding over the period.

USD/ZAR – Technical view

Source: IG Charts
Source: IG Charts

The short to medium term trends for the USD/ZAR remain down while the longer-term trend remains up. The currency pair also trades in oversold territory right now. The ambiguity of technical signals makes trade difficult right now.

We consider a near term range between levels 17.15 (support) and 17.50 (resistance). For a new directional bias, we now wait for a breakout in either direction with a confirmed close above or below the aforementioned levels.

This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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