South African Reserve Bank likely to hike rate only once in 2018 and 2019

The South African rand depreciated yesterday morning in line with other EM currencies due to appreciation of the US dollar. The rate decision and press statement of the South African central bank were not able to give any considerable momentum for the ZAR exchange rates in the afternoon, noted Commerzbank in a research report.

As was anticipated, the South African central bank kept its key interest rate on hold at 6.5 percent and sounded rather hawkish yesterday. In spite of the weaker growth in the course of the year – the growth forecast was lowered to 1.2 percent from 1.7 percent – it has adjusted its inflation and rate outlook to the upside. The central bank expects the overall rate to peak at close to 5.7 percent in the first half of 2019, but the pace will thereafter stay within its target corridor of 3 percent to 6 percent.

It sees upside risks for inflation not least with a view to the rand. The central bank indicated that its models currently saw the ZAR being undervalued. Consistent with the inflation outlook the SARB has also adjusted its rate outlook to the upside. Its rate path suggests only one rate step of 25 basis points for both this year and next year, stated Commerzbank.