Summary of macro-economic research views:
- Inflation: Disinflation remains the trend, with headline inflation in SARB’s 3%-6% inflation target range. That will ease pressure on the SARB and re-establish SA’s positive real yields.
- Repo rate: The SARB kept the repo rate unchanged at 8.25% in July, likely ending its rate-hike cycle. As things stand, investors anticipate that the SARB will pause until mid-2024, after which rate-cut cuts are anticipated for Q3. This will depend on the ZAR’s performance, however.
- Fiscal Policy: Fiscal dynamics remain concerning, with SA’s debt/GDP ratio forecast to rise towards the 75% mark. Risks have escalated, given the weak GDP growth outlook relative to National Treasury’s assumptions.
- GDP Growth: The GDP growth outlook has improved marginally but remains weak. Stagnation is now expected rather than contraction. This follows as load-shedding has improved, the SARB has stopped hiking earlier than expected, and consumption has proven more resilient than expected.
- Currency: Following a strong recovery from the May selloff throughout June and July, the ZAR has struggled for traction in the early stages of August. It is trading at the mercy of external developments and shifts in market sentiment but remains ripe for a continued recovery. However, this is unlikely to be a smooth recovery, with heightened volatility expected through the coming months.
- 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 SAGBs 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.