SARB keeps rates unchanged but Growth outlook deteriorates

The South African Reserve Bank decided to keep lending rates unchanged after its Monetary Policy Committee meeting.

There were no real surprises at the conclusion of the Monetary Policy Committee meeting as the South African Reserve Bank kept lending rates unchanged.

Some key takeaways from the meeting were as follows:

  • Inflation is well within the targeted 3% to 6% range, although the low point of the cycle is believed to be behind us
  • Higher oil prices impact on inflation will be somewhat moderated by lower food price inflation
  • Risks to the inflation outlook have started to materialize, with international events adding upward pressure to the figure
  • The Reserve Bank’s estimates for GDP growth in 2018 has been revised lower, from 1.7% to 1.2%

The Reserve Bank has also said that it believes the rand to be undervalued at present although expects the currency along with its emerging market peers to remain volatile.

The rand weakened on the day (around 1.5% vs the USD) where risk off sentiment saw emerging currencies in general under pressure.  The revised GDP estimates from the central bank perhaps provided some of a domestic catalyst for a further under performance of the rand.

Rand – Technical View

SARB2

The sharp weakening of the rand yesterday see’s the USD/ZAR breaking out of a short term wedge consolidation, to resume the short term uptrend in line with the longer term uptrend currently in place. The breakout is supported by the Stochastic oscillator moving out of oversold territory.

The near term high at R14.00/$ becomes the favoured initial target from the move, while a close below trend line support at around R13.10/$ would suggest the anticipated move to have failed.

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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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