South African Reserve Bank unlikely to hike rates in Q1 2019, may hike in mid-2019

In November, South African headline inflation had accelerated to 5.1 percent, which was considerably above the mid-range of the central bank’s inflation band. Core inflation rose toward the mid-range. The rising inflation pressures show the combined effect of a higher oil price and a softer ZAR earlier in 2018, noted Danske Bank in a research report.

Given the acceleration in inflation, the South African Reserve Bank hiked its key interest rate by 25 basis points to 6.75 percent during its policy meeting last month. Nevertheless, the decision was not unanimous, as three board members voted for an unchanged rate.

“Given the stabilisation of the ZAR and the significant decrease in the oil price, we believe SARB will keep its rates unchanged at its meetings in Q1 (January and March), as we expect a fall in headline inflation. We expect the next policy change to be a reduction by mid-next year”, added Danske Bank.