SARB: Shifting to a 25 bps hike, from 50 bps in May

The positive and negative CPI developments since the last MPC meeting

There is a list of both positive and negative developments on the domestic CPI front since the last MPC meeting in May. Perhaps most notably on the downside are the BER surveyed inflation expectations for 2Q23 that showed an increase for this year, next year and 2025. On balance, we believe that rising inflation expectations and the cost of delaying a possible hike (and risking higher inflation) will outweigh waiting for more data to confirm a CPI slowdown.

Rand moves more strongly; we still prefer a bullish bias on bouts of weakness

Our view on the currency remains unchanged – we see fair value (FV) in the 16,20-16,70 range and believe one should be bullish rather than bearish on rand moves above 19,00. It does appear as if there was a large, short position on the rand ahead of last week’s US CPI data that came in better than expected. Unwinding of some of this short position should aid the currency. As far as the EURZAR is concerned, our FV is in the 17,50-18,40 range. Here, too, we would rather be bullish rand on approach of the 21,00 level against the EUR.

CPI expected at 5,6% yoy in June

We project SA CPI to ease further in June, to 5,6% yoy from 6,3% in May, driven predominantly by lower transport and food inflation.

Our full-year CPI forecast remains unchanged at 6,3% yoy. We will wait for definitive signs of further disinflation in the food basket before making any substantive downward adjustments to our headline inflation estimate. We believe that, at this level, risks to our estimate are balanced. Our CPI estimates for 2024 and 2025 remain unchanged at 4,9%, with upside risks to both years. We see inflation reaching 5,8% by December 2023, and 4,9% in 12 months, ending 2024 at 4,5%. 

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