SARB likely to remain ‘on hold’ this week – TDS

Strategists at TD Securities see the SARB pausing its recent tightening bias at its meeting on Thursday.

Key Quotes

“At each of the past three meetings, the Bank has hiked its policy rate, in total by 100bp, bringing it to 7.0%”.

“The SARB has been worried about inflation running above the top of the 3-6% target band, driven mainly by high food price inflation as a result of the drought, and rand weakness. However, recent CPI inflation data has surprised on the downside with March CPI headline inflation falling to 6.3% Y/Y from a prior 7.0% and, even more surprisingly, core inflation falling to 5.4% Y/Y from a prior 5.7%”.

“Since the March MPC meeting, the rand has been volatile, but overall the trade-weighted index has scarcely changed”.

“Some recent activity data has given some grounds for optimism with, for example, the manufacturing PMI jumping up to 54.9 in April, but it is too early to tell whether this is a start of a pick-up in growth, albeit from very depressed levels”.

“At the March meeting, the decision to hike was close, with the initial voting showing MPC members evenly split between those who wanted to hike and those who wanted to keep rates on hold. Overall we think that the SARB is likely to pause at this week’s meeting, but another hike cannot be ruled out”.