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’s last meeting on 22 September 2017 as well as developments since the last meeting (which, in our view, could influence the MPC rate decision on 23 November 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, eight support an unchanged stance, two factors favour hikes, while three factors support a cut. On a weighted basis, this implies a 63% probability of a hold at this week’s MPC meeting.
  • Based on our analysis, we are of the opinion that the repo rate will be left unchanged at 6.75% this week. We are expecting the SARB to revise its inflation profile slightly higher for 2018, 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. Therefore, the tone this week may be relatively hawkish. Furthermore, possible upside risks from petrol costs, electricity tariffs and public sector wage negotiations may be highlighted.
  • 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.