Rand report: SARB rates announcement

The South African Reserve Bank (SARB) concludes its Monetary Policy Committee (MPC) meeting on Thursday the 22nd of November.

The South African Reserve Bank (SARB) concludes its Monetary Policy Committee (MPC) meeting on Thursday the 22nd of November. At September’s MPC meeting, it was noted that three of the four members voted to increase lending rates by 0.25%. The rand, while having stabilized in the short term, remains around 13% weaker year to date (against the US Dollar). The SARB has also been more hawkish in recent communications and in turn there has been some speculation that the central bank may hike interest rates to align itself with global market trends (both in developed and emerging markets). While South Africa remains in a technical recession, monetary policy at present is still considered to be accommodative suggesting some room to tighten.

The base case scenario is however that the SARB will keep lending rates unchanged at the MPC meeting. The SARB’s inflation forecasts have been revised lower at the last few meetings. The recent sharp decline in oil (which has been the largest inflation input) is likely to see further downward revisions on the inflation outlook. There is also an unspoken suggestion that political will may influence a decision to keep rates low as we move into the election period. Economic growth remains weak in South Africa and the SARB while remaining cognate of growth has a mandate more geared towards inflation targeting. In any case, both the levels of domestic growth and inflation would support the view that lending rates will remain unchanged at this month’s meeting.

The Rand (USD/ZAR) – Technical View

SA40 20112018

The longer-term uptrend for the USD/ZAR (marked with the dotted trend line) has recently been broken to the downside. In the short to medium term, the USD/ZAR currency pair still trades within a broad sideways range between levels R14/$ and R15/$. The price is currently testing the lower level of support of this range (R14/$).

There is an intraday low at R13.85/$ which we are using to determine a possible downward trend bias i.e. should the current levels of support not hold and the price move to close below R13.85/$, we would start to assume that the short to medium term trends are moving from sideways to a down insinuating further dollar weakness / rand strength to follow. This scenario could be catalyzed (omitting the influence of international catalysts) if the less expected outcome of a rate increase was to be realized, in which case the next levels of support for the USD/ZAR are considered at R13.50/$ to R13.10/$.

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This information has been prepared by IG, a trading name of IG Markets Limited 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. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.

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