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Will the SARB raise rates by 50 basis points?

In this article we preview the SARB MPC rates meeting and take a look at how the rand is trading into the event.

When is the SARB rates announcement?

The South African Reserve Bank (SARB) is set to conclude its Monetary Policy Committee (MPC) meeting on Thursday the 19th of May 2022 and in turn announce any changes to domestic lending rates. The SARB announcement and press conference to follow will take place at 3pm (Thursday).

What to expect from the MPC meeting

A 50 basis point rate hike while not a definite, appears the probable outcome at the upcoming MPC meeting. The SARB will be looking to try maintaining some price stability as inflation looks set to breach the 6% mark. The recent blowout in the Rand has certainly not made things easier. The ongoing war and Chinese lockdowns continue to distort the inflation outlook as well, through both demand and supply side dynamics.

The Reserve Bank will also be trying to keep up with what is now a faster pace of monetary policy normalization around the world, to maintain a relative attractiveness of yield differentials.

The fine line our central bank walks, is the impact of aggressive tightening amidst a slowing economic recovery, which will have been further negatively impacted by the KZN floods. Concern is also drawn around a slowdown in China which will have a knock-on effect for domestic GDP (Gross Domestic Product).

On balance it does seem like the SARB will want to try get ahead of the curve at this meeting with a 50 basis point increase instead of the 25 basis point increments we have become accustomed to, keeping the view that rates are still accommodative on a relative basis.

The Rand

The USD/ZAR looks to be reversing off both the R16.35/$ resistance level and from overbought territory at present.

R15.70/$ becomes the initial support target from the move, although currently this would assume a short term correction of a longer term uptrend. Should the short term correction manage to extend past the 200 day simple moving average and horizontal support at R15.30/$, only then would the longer term trend bias be reevaluated.

For now, our preference remains looking for long entry into the short term correction until such time as the R15.30/$ support level is broken.

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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