SARB rates decision amidst a busy week for central banks

Central Bank meetings in focus

South African Reserve Bank (SARB) members convene this week at the Monetary Policy Committee (MPC) meeting and will announce its predictions towards the economic outlook and changes (if any) to local lending rates.

The meeting is scheduled within a busy week for central banks with the Federal Reserve, Bank of England (BOE), and Bank of Japan (BOJ) all set to announce changes to monetary policy therein as well.

When is the SARB MPC meeting and rates decision?

The SARB will conclude its two-day MPC meeting on Thursday the 22^nd September and announce its rates decision and economic outlook at 3pm that day.

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

Expectations are evenly divided for either a 50-basis point (0.5%) or 75 basis point (0.75%) hike at the meeting. Our thoughts lie with the latter (0.75%) increase in lieu of persistently high inflation domestically and internationally. The SARB has also shown as of late that it is trying to keep pace with monetary policy internationally to help stem capital outflows. The US seems likely to raise rates by 0.75%.

The current repurchase (repo) rate set by the SARB is 5.5%, while the prime lending rate in South Africa is 9%.

Key data points to watch for this week

Key data points to look out for in lieu of important local and global monetary policy themes include:

USD/ZAR – Technical view

The bullish price reversal (circled black) in our previous note has done well in projecting further upside for the USD/ZAR (dollar strength / rand weakening). The price has since taken out the high at R17.55/$. In so doing we do see the dollar moving into overbought territory against the rand. This suggests that we could see a short-term pullback in the currency pair before the longer-term uptrend is resumed.

Trend followers will look to keep a long bias to trades on the USD/ZAR, looking to find entry into a short-term pullback should one occur.

GBP/ZAR – Technical view

The GBP/ZAR current price action suggests a range bound environment for the time being. The currency pair is currently testing resistance at the R20.25/GBP mark. A close above this level would see R20.65/GBP as the next resistance target from the move.

Should the current level of resistance at R20.25 hold, a move back towards R9.60/GBP could be expected.

Our preference for trades on the currency pair is to look for short entry on a bearish reversal off the current R20.25/GBP resistance level. In the event of an upside breakout of this level occurring instead, we would wait for a bearish reversal closer to the R20.65/GBP resistance level for short entry.

Our short bias consideration remains while we trade closer to the resistance levels of the range and further away from support. The overbought suggestion on the GBP/ZAR furthers this notion for now.