Rand weaker despite SARB rate hike
In this article we look at the recent SARB MPC statement and rates announcement as well as how the rand is reacting to the news
Rand softer despite increase in repo rate
South African Reserve Bank (SARB) Rate Decision
The conclusion of the Monetary Policy Committee (MPC) meeting has seen the SARB raising the repurchase (repo) rate by 25 basis points (0.25%)
In turn the Repo rate now moves to 3.75% while the Prime lending rate moves to 7.25%.
Further quarterly rate hikes implied
The SARB’s Quarterly Projection Model (QPM), while subject to change along with economic conditions, currently implies one 25 basis point rate hike each quarter from now through to the end of 2024.
Growth outlook revised lower
The outlook for growth in 2021 has been revised marginally lower to 5.2%, from 5.3% previously. This reflects in part the civil unrest in July this year.
Inflation outlook revised higher
The outlook for headline consumer price inflation (CPI) has been revised higher by 10 basis points (0.1%) each year with the banks current expectations as follows
- CPI of 4.5% in 2021, 4.3% in 2022 and 4.6% in 2023
Rand softer
Despite a more hawkish SARB, the rand has continued to weaken.
It would appear that the initial ZAR weakness has followed its emerging market counterpart the Turkish Lira which is significantly softer on the day as well.
Turkish policy makers are looking to further ease monetary policy despite rampant inflation.
Weaker commodity prices are also providing some weight to the domestic currency move today.
USD/ZAR – Technical View
The USD/ZAR is currently breaking through historical resistance at the R15.50/$ mark.
The move higher suggests the longer term trend of dollar strength / rand depreciation to be continuing.
R16.05/$ becomes the next upside target from the move.
Traders who are long might consider using a close below R15.50/$ as a stop loss indication for the trade.
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