The South African Central Bank (SARB) kept interest rates steady and cut their economic growth outlook all the way to 2021. The unanimous decision to keep rates steady at 6.75% was widely expected. The MPC noted that they continue to asses the stance of monetary policy to be accomodative.
The MPC maintained their inflation forecasts for 2019 at 4.8% and 2020 at 5.3% and trimming 2021 from 4.8% to 4.7%, which are all within the Bank’s 3.0-6.0% target range.
The monetary policy statement noted, “Since the January MPC, the rand has depreciated by 6.4% against the US dollar, by 5.2% against the euro, and by 6.1% on a trade-weighted basis. The implied starting point for the rand is R14.00 against the US dollar, compared with R14.30 at the time of the previous meeting. At these levels, the QPM assesses the rand to be less undervalued.”
While the SARB’s Quarterly Projection Model still sees the chance of a 25 basis hike before the end of the year, it will be difficult them to hike with risks to the growth forecast continuing to be on the downside.
Following the decision and press conference, the rand was lower to the dollar by 0.3%, mainly having some contagion pressures stem from Turkey. The SARB keeps the door open for a hike later this year and we could see the rand rally once we see the dust settle in Turkey and if we see global growth concerns ease in the coming months.