Good day,

Herewith the latest edition of the Monthly Insights. We trust that this will contribute to a broad overview of the interest rate, currency and financial markets. Please feel free to address any questions or comment on the contents to the undersigned.

Executive Summary

  • SA emerged bruised but not completely battered from the latest round of sovereign risk rating updates, in our opinion. Fitch affirmed the country’s BB+ rating with a stable outlook. Moody’s placed SA’s Baa3 foreign and local currency ratings on review for downgrade, with the decision to follow the 2018 National Budget in February. However, S&P Global downgraded SA’s local currency rating to BB+ (one notch below investment grade) and our foreign currency rating to BB (two notches below investment grade), while changing the rating’s outlook to stable.
  • The latest statistics suggest the already modest economic recovery stalled somewhat in September 2017. Despite this, mining, manufacturing, retail sales and new car sales managed to grow over 3Q17 as a whole, compared with 2Q17. We still expect GDP growth of just over 2% qoq in 3Q17. We have left our GDP forecast for 2017 unchanged at 0.8%, but revised our forecast for 2018 and 2019 down to 1.1% and 1.6%, respectively from 1.2% and 1.9% previously.
  • Last month we made the case that the window of opportunity for the SARB to loosen monetary policy further is closing, if it has not already. We believe that the developments since then re-affirms our view that the significant upside risks to the inflation profile trumps over the downside risks and would imply a cautious stance to monetary policy in 2018. Should these upside risks materialise, we could possibly see the SARB respond by raising interest rates in the latter part of 2018 or in early 2019.
  • There has not yet been a sustainable negative reaction by the local crosses to the recent credit rating downgrade – the USDZAR has actually strengthened and broken below key technical levels recently, while it also withstood key rand resistance levels. Currently, the R13.60/$ level poses as key rand resistance, while R13.95-14.00/$ represents rand support. A break of either level would open up a wider range of between R13.20/$ to R14.20/$ in the near-term.