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SARB Maintains 5.75% Repo Rate as Inflation Outlook Deteriorates

SARB Maintains 5.75% Repo Rate as Inflation Outlook Deteriorates

Walker England, Kara Dailey,

Talking Points:

  • SARB holds interest rates constant at 5.75% in March
  • New inflation forecast places average inflation in 2015 at 4.8% vs. prior estimate of 3.8%
  • USD/ZAR remains supported above ascending trendline

Despite a deteriorated near-term inflation outlook, the South African Reserve Bank elected to hold the Repo Rate constant at 5.75% in March. While, upside inflation risks have returned the level of uncertainty regarding global market progressions was too great to warrant an immediate change in rates. Thus, the Rand is expected to maintain its volatility, heavy influenced by commodity prices and the value of the US Dollar.

In their statement the Monetary Policy Committee reviewed the domestic and global economic outlook as well as the inflation and exchange rate situation. Of immediate concern is the bank’s ability to maintain their inflation target. Upward pressure has returned to the price level as the cost of energy and electricity has climbed and as fuel prices look to reverse. Their latest forecast now places inflation in 2015 at an average of 4.8% vs. the previous estimate, 3.8%.

Reversals appear to be the theme; where growth has moderated in the U.S. and China it has surprised to the upside in the Euro Area and Japan as stimulus measures take root. Consequently global financial markets remain dazed as market expectations continue to vary. Thus, the value of the US dollar and subsequently the South African Rand will likely remain volatile. More specifically if the Rand continues to appreciate on Dollar weakness it will likely add to the country’s pre-existing upside inflation risks.

USD/ZAR Daily Chart

Chart Created by Walker England Using MarketScope2.0

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.