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SARB Maintains Base Rate as Manufacturing Outlook Improves

SARB Maintains Base Rate as Manufacturing Outlook Improves

Walker England, Kara Dailey,

Talking Points:

  • SARB maintains base rate at 5.75%
  • While PPI fell to 5.8% in December, the manufacturing PMI increased to 54.2 in January
  • USDZAR may be developing into a Flag Formation

Remaining in the process of interest rate normalization, the South African Reserve Bank elected to hold interest rates steady at 5.75%.After considering the effects inflation and global growth have had on the economy, the MPC concluded that they only have reason to pause; a more sustained decline in inflation and inflation expectations would be needed to reverse course and engage in accommodative policies. The committee instead remains optimistic, as lower energy prices moderated December’s PPI and drove an increase in January’s manufacturing PMI.

A 14.7% (y/y) decline in fuel prices more than offset the 8.0% increase in the food/beverage/tobacco category. As a result producer prices dropped from 6.5 to 5.8 percent. Coupled with a weaker Rand, the lower energy/input costs lead to an increase in expected business conditions 6 months out. Consequently the Kagiso Manufacturing PMI rose by 4 points from 50.2 to 54.2.

The seasonally adjusted index was driven by a substantial improvement in the business activity component which increased from 51.6 to 61.7. Also expanding in the first month of 2015: new sales orders (+ 1.1%) and inventories (+9.2). In contrast the employment index declined to 43.8 from 46.3 as the price index fell to 61.9. However, the fall in PMI prices may prove beneficial, potentially indicating that a PPI slowdown may continue into 2015.

USDZAR Daily Chart

dailyfx US dollar South African Rand daily chart February 2015

Chart Created by Walker England Using MarketScope2.0

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