The South African Reserve Bank (SARB) is likely to follow the lead of the US Federal Reserve and keep interest rates on hold when it meets next week.<\/p>\n\n\n\n
The SARB’s Monetary Policy Committee (MPC) will meet next Thursday, 23 November and decide on what to do with interest rates, with the repo rate currently standing at 8.25%. <\/p>\n\n\n\n
The rand has been incredibly volatile, jumping from R18.80\/$ to R18.20\/$ yesterday, 14 November amid changing expectations around US interest rates, which Investec Chief Economist Annabel Bishop believes to have peaked in the current cycle. <\/p>\n\n\n\n
“Global financial markets remain highly sensitive to the US interest rate cycle, and fluctuating expectations add to rand volatility. Most recently, cooling US inflation data for October (down from 3.7% to 3.2%) provided a boost to the rand, as the US dollar weakened,” Bishop said. <\/p>\n\n\n\n
“The US inflation report was seen to reduce pressure on the US monetary authorities to increase interest rates again, and this will also be positive for SA.” <\/p>\n\n\n\n
That said, Bishop warned that there is still a risk of another 25 basis point hike in South Africa and the USA. <\/p>\n\n\n\n
“In particular, the differential between SA and US interest rates has narrowed further, to 2.75% from 3.00% in June, and 3.50% two years ago, which has added to rand weakness and so upwards inflationary pressures in South Africa,” Bishop added. <\/p>\n\n\n\n
However, foreigners have been major purchasers of South African bonds this quarter, with R17.5 billion worth of purchases. This brings the year-to-date total to R12.4 billion after there were R5.1 billion worth of outflows in the first three quarters of the year. <\/p>\n\n\n\n
Markets have increased their risk appetite amid the expectation that the US interest rate hike cycle has ended, boosting emerging market portfolio assets such as South African bonds. <\/p>\n\n\n\n
Consumer Price Inflation in South Africa is also expected to moderate from the latest reading of 5.4% y\/y – near the upper limit of the SARB’s target range of 3% to 6% – and average around 4.6% in 2024. <\/p>\n\n\n\n
“This indicates no need for an interest rate hike in South Africa next week, and we do not expect one, particularly given the recent appreciation in the rand<\/strong>. However, the SARB will likely evince a hawkish tone overall,” Bishop noted. <\/p>\n\n\n\n “The focus, however, is on the US and its incoming economic data, particularly inflation and jobs data, while market players are building up their appetite for risk-taking, with further rand strength expected as no further US interest rate hikes occur.”<\/p>\n\n\n\n
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