The South African Reserve Bank (SARB) is expected to hold its repo rate steady at 5.75% on Thursday. However, higher oil prices, a deteriorating domestic food-price outlook and the probability of higher-than-expected electricity tariff hikes all suggest an upward revision to the SARB’s inflation forecasts. With a weak base in Q1-2015, a the 3-6% inflation target could be breached in Q1-2016. The SARB will not tighten on auto-pilot. Given weak growth, a temporary inflation-target breach would likely be accommodated.But with risks to the South African rand (ZAR) likely to be magnified ahead of any Fed tightening, and inflation risks likely to be sustained, a rate hike is expected at the July Monetary Policy Committee meeting. “We expect the SARB to sound hawkish now, and to tighten pre-emptively in July”,said Standard Chartered in a perot on Wednesday.
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