Good day,

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 (30 March 2017) as well as developments since the previous meeting (which, in our view, could influence the MPC rate decision on 25 May 2017). The factors are rated on a stand-alone basis as a likely hike, hold, or cut and are weighted into three broad categories: global economy (20%), domestic economy (40%) and major inflation drivers (40%) – as per Table 1.
  • Of the 13 factors analysed, three support expectations for a cut and ten factors support an unchanged stance. On a weighted basis, this implies a 77% probability of a hold at next week’s MPC meeting.
  • Based on our analysis, the Nedbank CIB view is for the repo rate to be left unchanged next week. We are expecting the SARB to make minimal, if any, changes to its inflation profile. However, we expect it to downwardly revise its growth forecasts, given recent developments. We believe that the SARB is likely to reiterate that we are at the peak of the current hiking cycle but to maintain a marginally hawkish stance given a vulnerable rand exchange rate due to event risks on the horizon.

We believe that the rand and the local socio-political risk premium remain key swing factors, given their fluidity. Key event-risks in the form of geopolitical tensions, possible credit rating downgrades, combined with a Fed rate hike profile will also have a bearing on local monetary policy decisions in our opinion.