South African Reserve Bank likely to keep key interest rate stable in November, says Commerzbank

South African’s Reserve Bank is expected to keep its key interest rate stable at its monetary policy meeting, scheduled to be held on November 22, according to the latest research report from Commerzbank.

One day before the South African Reserve bank's probably tight interest rate decision, the focus today is on the inflation data for October. The consensus expects core inflation to rise by 0.2 percent on the previous month, which would boost the annual rate from 4.2 percent to 4.3 percent.

The headline rate is likely to reflect the combination of higher oil prices and weaker rand. Thus it is expected to rise by 0.6 percent compared to the previous month, bringing the annual rate up to 5.2 percent after 4.9 percent in September, the report added.

The data are receiving special attention because expectations for the central bank's interest rate decision are at a knife's edge. Therefore, surprising results in particular are likely to have a corresponding impact on rate hike expectations and thus on rand exchange rates: Low inflation data should tend to dampen rate hike expectations and provoke rand weakness.

Conversely, surprisingly high inflation data should give the rand a boost. However, should this be the case, contrary to our expectations, the central bank could classify this as a one-off effect.

"We assume that the rand recovery since September and the marked decline in oil prices since the beginning of October will noticeably brighten the inflation outlook," the report commented.