SARB takes a breather, tightening cycle near the end - TDS

The South African Reserve Bank (SARB) kept its interest rate unchanged at 7.0%. According to analysts from TDS, the end of the tightening cycle is approaching with an additional 50bp increase, that could take place as soon as July.

Key Quotes:

“The SARB kept its policy rate on hold at 7.0%. This was in line with our and the consensus expectation. The decision to hold rates was more clear cut than we expected, with only one of the six MPC members voting for a 25 bps hike.”

“The new forecasts for headline inflation see a moderate near-term deterioration, but some improvement in the medium-term outlook.”

“The MPC remains concerned that headline inflation is forecast to remain above the top of the target range
until Q3 2017.”

“The main justification for pausing today was the fact that previous policy rate hikes have contributed to the longer-term improvement in the inflation forecasts.”

“We think that we are nearing the end of the tightening cycle. We have pencilled in 50 bps of additional tightening with the next hike probably coming as soon as the July meeting. However, the performance of the rand will have a big impact on SARB policy. In particular, negative political developments or a rating downgrade to junk could cause a sharp rand sell-off, there by necessitating a tighter policy”