South African Reserves Bank to keep rate at 6.50% says Merrill Lynch

Johannesburg, South Africa, Capital Markets in Africa — The South African Reserve Bank (SARB) will be meeting tomorrow to determine policy rate.

Given the current outlook of the economy, threatened with recession and inflation above the 3 percent to 6 percent target, economists and traders are divided which way SARB will go interest rate move. Some economists predict the Monetary Policy Committee will keep the benchmark rate unchanged at 6.75% and some  expect a 25 basis-point of tightening.

Matthew Sharratt, South Africa Economist, Merrill Lynch believes the SARB is likely to remain on hold at 6.75%, even though there is small risk of a back-to-back hike at the 17 March MPC meeting.

The report highlighted three key considerations for the March MPC meetings. Firstly, the January headline CPI outturn was likely not a major surprise relative to the SARB’s already bearish forecasts, which had looked for an average 6.2% in 1Q16. Secondly, the February 2016 Budget signaled a modest degree of fiscal tightening over FY2016-18 (roughly 0.5% of GDP per year). Finally, and more notably, the trade-weighted rand has actually strengthened by 5% over the past two weeks compared to a 13% sell-off in the two weeks running into the 28 January MPC meeting.