Herewith the latest edition of our Interest Rate Barometer. We trust that this will contribute to a broad overview of our view and expected outcome of this week’s Monetary Policy Committee meeting.

Executive Summary

  • The interest rate barometer considers the factors influencing the decision of the SARB’s Monetary Policy Committee as stated in the statement accompanying the previous meeting’s interest rate decision (19 May 2016) as well as developments since the previous meeting which could influence Thursday’s MPC rate decision. The factors are rated on a stand-alone basis as a likely hike, hold or cut and are weighted into 3 broad categories: global economy (20 %), domestic economy (40 %) and major inflation drivers (40 %) – as per Table 1.
  • Of the 13 factors analysed, 2 support expectations for a hike (3 previous), 9 factors support an unchanged stance (8 previous) and 2 factors favour a cut (2 previous). On a weighted basis, this implies a 70 % probability of a hold at this week’s meeting. The shift indicates a short term reprieve but maintains a hawkish bias over the longer term.
  • Based on our analysis, the Nedbank CIB view is for the repo rate to be left unchanged this week. We are expecting the SARB to revise their growth and CPI profiles lower. The SARB is likely to reiterate that this is a pause in a hiking cycle.
  • The rand and the local socio-political risk premium remain key swing factors given their fluidity. Currently, global capital flows are proving supportive despite the bearish macro-fundamental backdrop.