The South African Reserve Bank convenes for its first Monetary Policy Committee meeting next week – 17 January 2019.
When it last met in November, the committee decided to increase the repurchase rate by 25 basis points to 6.75% per year.
A report by BofA Merrill Lynch Global Research indicates that SARB is likely to remain on hold in coming months.
“After the pre-emptive November hike and comments on data dependency, we expect the SARB to remain on hold in coming months. Lower oil and a contained core could lead the SARB to lower its inflation forecasts and reduce hikes in the quarterly projection model versus the current baseline of three more by 2020,” the group said.
The forecast for core inflation is 5.3% in 2019 and 5.5% in 2020. These inflation projections are based on an interest rate path generated by the SARB’s Quarterly Projection Model (QPM).
Risks will come from global conditions, the rand, oil and administered prices, BofA Merrill Lynch said, noting that it predicts a more gradual increase in core inflation of 4.9% in 2019.
“The main risk to our view is rand weakness triggered by turns in EM (emerging market) sentiment or domestic fiscal errors. The trailing fiscal deficit is within the October budget estimate but revenue shortfalls and Eskom’s proposed debt transfer plan are key risks.
“We continue to see scope for a Moody’s downgrade in the next year,” the financial services firm said.
The rand traded at the following levels against the major currencies on Thursday:
- Dollar/Rand: R13.90 (0.29%)
- Pound/Rand: R17.73 (0.05%)
- Euro/Rand: R16.01 (0.08%)