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. Please feel free to address any questions or feedback to the undersigned.

Executive Summary

  • The interest rate barometer considers the factors influencing the decision of the SARB’s Monetary Policy Committee’s last meeting on 20 July 2017 as well as developments since the last meeting (which, in our view, could influence the MPC rate decision on 21 September 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%) (see Table 1).
  • Of the 13 factors analysed, six support expectations for a cut and seven factors support an unchanged stance. On a weighted basis, this implies a 57% probability of a hold at next week’s MPC meeting on 19 to 21 September 2017.
  • However, the July 2017 MPC meeting reflected a slight shift in focus of the MPC towards growth since inflation has already fallen within the SARB’s target band. If we skew the weights to reflect this increased focus on growth, we get an almost even split between a hold and a cut decision.
  • Based on our analysis, we are of the opinion that the repo rate could be reduced by 25bps next week. We are expecting the SARB to revise its inflation profile slightly lower for 2017, while its growth forecasts are expected to remain unchanged. We believe that the SARB is likely to reiterate the vulnerability of the 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 and local political headlines, combined with a Fed rate hike profile will also have a bearing on local monetary policy decisions, in our opinion.