Summary of macro-economic research views:

  • Inflation: Inflation continues to trend lower and may well re-enter the SARB’s 3%-6% inflation target range within the next two prints. That will ease pressure on the SARB and re-establish SA’s positive real yields.
  • Repo rate: The SARB opted to raise rates by 50bps at the last meeting in May to take the repo rate up to 8.25%. As things stand, investors are anticipating that the SARB may hike one more time by 25bps. This will depend on the ZAR’s performance and whether major central banks abroad begin to signal the end of their rate-hike cycles.
  • Fiscal Policy: With much of Eskom’s debt rolling onto the sovereign’s balance sheet, the debt/GDP ratio for the country is forecast to rise towards the 75% mark. Risks have escalated, given the weak GDP growth outlook relative to National Treasury’s assumptions.
  • GDP Growth: GDP growth forecasts will need to be revised lower, with a yearly contraction still on the cards. The degree of contraction will depend on the extent of load-shedding going forward. At the moment, this has improved, but that is not guaranteed to last.
  • Currency: Following a strong recovery from the May selloff throughout June, the ZAR has struggled for traction in the early stages of July. It is, by and large, trading at the mercy of external developments and shifts in market sentiment at the moment, but remains ripe for a continued recovery as foreign investors begin to see value in SA’s high yields and the ZAR’s undervaluation.
  • Bonds: Although investors are starting to see the value in the high yields on offer in SA, external conditions will need to turn more supportive for SAGB’s to recover more completely. Having said that, inflation is set to continue moderating, meaning the real yields SA bonds will offer are set to increase substantially.
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