“On the day prior to its monetary policy meeting today the inflation data published yesterday confirmed that the South African central bank (SARB) is facing a further rise in inflation rates,” explains Elisabeth Andreae, FX and EM Analyst at Commerzbank.
“Like the majority of analysts polled by Bloomberg we expect the SARB to take countermeasures today by hiking the key rate in a 50bp step to then 5.25%.”
“A third of analysts expects a larger step of 75 bp though and some market participants also seem to be expecting that. Enforced rate hikes promise a more rapid success on the inflation front and other central banks’ more active approach might be putting pressure on SARB. However, this approach increases the risk of stronger drops in growth.”
“The rand has been trading at significantly weaker levels against USD and EUR recently, which means that a lot already seems priced in as regards rate expectations. A rate step in line with consensus expectations might cause some disappointment amongst market participants, putting pressure on the rand.”
“A surprisingly large step or a surprisingly hawkish statement might support the rand at least temporarily, due to the growing risks possible gains are likely to be limited though.”
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