SARB Announcement

SARB expected to lower rates one more time.

This afternoon will see the conclusion of the South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) meeting, and with it the verdict on whether local lending rates will change.

Consensus estimates suggest that there will be no change to lending rates at the meeting, although the SARB could present a more dovish tone, alluding to a 25-basis point (0.25%) rate cut before year end. Last night’s rate cut in the US and recent dovish actions from other major central banks (such as the ECB), do provide more headroom for the SARB to lower rates later this year.

While inflation has surprised to the downside (since the last MPC meeting), the Reserve Bank will be weary of the recent move in oil (South Africa’s largest import) as well as the rand’s susceptibility to current geo-political and trade war uncertainty. Adding South Africa’s growing twin deficits (budget and current account) to the mix perhaps add further weight to the expectation of ‘no change’ at today’s meeting.

The South Africa Financial Index (FINI)

The FINI index has undergone a sharp trend reversal as suggested by the double bottom (blue ‘W’) chart pattern highlighted in our previous note on the index (see here). The rally which has ensued see’s the index now trading in overbought territory. The overbought signal finds agreeance with the bearish candle stick reversal pattern (bearish harami) circled blue.

The price reversal and overbought signal suggest that we could see a short term retracement in the index price. The trend is however considered up for the FINI. In turn we would look for a long entry into a pullback towards the 15720 level, rather than shorting the market against the prevailing uptrend.

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