SARB rates hike unlikely

Local rates expected to remain on hold although risks for further tightening remain

The conclusion of the Monetary Policy Committee (MPC) meeting is expected to see Reserve Bank Governor, Lesetja Kganyago, leave lending rates paused for the time being as recent economic data would appear to support such a decision.

A surprise, 3.3% quarter on quarter GDP growth reported in Q2 2016, and large narrowing of the current account deficit to 3.1% of GDP have led to what appear to be mildly improving economic conditions. While economic growth is not necessarily the Reserve Bank’s primary data point when deciding the path of lending rates, the better than expected data would certainly consider the possibility of a ratings downgrade at year end having reduced probability of occurring.

In turn we have seen some domestic catalysts for rand strength, while inflation, a key metric for the rates decision, has moderated below levels previously forecast by the central bank. Weak retail sales data, reported recently, will however be a reminder that the local consumer remains under pressure and a raising of rates would provide even further pressure to a highly indebted consumer.

While no hike to the repurchase rate is expected on Thursday, risks to the commencement of the tightening cycle do remain. A ratings downgrade at year end is still possible (although the probability thereof is now considered below 50%), with socio-political risk still prevalent and state owned enterprises under pressure as investors become less willing to lend to those with governance issues and troubled balance sheets.  

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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.