SARB Rate Decision to stay on hold amid stronger USD
As the economy is giving signs of recovery, the South African Central Bank (SARB) is expected to maintain its Repo rate unchanged during today’s monetary policy meeting. Chairman of the Federal Reserve Jerome Powell positive views for the US economic growth outlook made in front of the United States Congress gave the greenback a strong boost at the expense of EM currencies.
Jerome Powell 2-days discussion confirmed that the US economy is growing at a faster pace than previously anticipated, while Q2 2018, despite escalating trade sanctions declarations among commercial partners, remained the strongest in the year, thus signaling that further monetary policy tightening would not be a problem for the economy. The address remained however vague for what concerns escalating trade conflict and its potential impact on Q3 GDP growth pace, in the case of full tariff implementation measures from all trade parties.
The announcement gave the dollar a strong boost against major peers and particularly against EM currencies. And the rally is certainly not going to come to an end for now. Since the South African economy is recovering from political tumult since Zuma resignation in February and starts regaining confidence, rumors concerning discord within the governing African National Congress party emerge, as pro-Zuma members are planning a fight-back strategy, thus causing further uncertainty issues in the country.
Due to positive economic data and particularly on the front of domestic consumption as well as manufacturing activities, the SARB is expected to give the economy some relief, maintaining its Repo rate at 6.50% (unchanged since 28. March 2018), despite continued rise in inflation data (CPI y/y +4.60%).
Currently trading at 13.3638, USD/ZAR is expected to strengthen after the SARB announcement, approaching the 13.50 range.
