Markets are holding their breath for the next week ahead, as Stats SA publishes inflation data ahead of the South Africa Reserve Bank’s next move on interest rates.
According to Investec economist Lara Hodes, this week proved to be a volatile one for markets, showing their sensitivity to macroeconomic data.
The rand had some ups and downs, but ultimately recovered some lost ground as US inflation data came out stronger than expectations, suggesting the US inflation rates have peaked.
The currency is trading around R18.30 to the dollar after heading dangerously close towards the R19/$ levels earlier in the week – levels it has managed to avoid in recent weeks.
However, the jury is still out on the path forward for the rand, as minutes from the FOMC will be released on Tuesday (21 November), giving a better indication of where the Fed lies.
This is just one of the key events next week that will chart the path for local markets, which are taking direction from global market movements, with local developments next week likely to also impact the rand.
The other key data coming next week is inflation rates, with Investec anticipating headline CPI to come in at the same level as September at 5.4%. Stats SA will publish the numbers of Wednesday (22 November).
This will feed directly into the conclusion of the SARB’s Monetary Policy Committee meeting on Thursday (23 November) where Reserve Bank governor Lesetja Kganyago will make his final interest rate announcement for 2023.
“(The SARB) is projected to leave the repo rate unchanged at 8.25%, following on from the FOMC meeting on 1 November,” Investec said.
“Indeed, while CPI inflation in SA has risen to 5.4% y/y recently it is expected to decrease to an average of close to 4.6% y/y in 2024, the period the SARB is currently targeting. We expect CPI to have lifted by 0.4% m/m translating to 5.4% y/y (unchanged from September).”
While October is a relatively low survey month, additional fuel price hikes were implemented in October, adding upwards inflationary pressure.
Food inflation, which makes up a significant portion of the CPI basket, however, is likely to decline further, albeit modestly.
Other data points will also be coming to give a sense of the state of South Africa’s economy, with the Business Confidence Index for the last quarter of the year due to be released on Tuesday by the BER.
“We expect the index to have risen moderately from 33 logged in Q3.23 to a still subdued 38,” Investec said.
An improvement in electricity supply during the survey period will have buoyed sentiment to an extent, however, businesses still face a number of challenges, including logistical constraints and high levels of red tape.
As markets hold their breath for the important week ahead, Investec noted that one more development could still play out this week – a possible country review from credit ratings firm S&P.
“(On Friday), S&P is scheduled to provide a country review, and potentially ratings action, on SA, but rating agencies have in the past also skipped these reviews if they believe no update is necessary,” Investec said.
S&P currently rates SA BB-. The economists said that the agency will either drop the outlook to a negative – or wait until the February Budget to decide if it needs to make a change.