Key points:

  • Understanding the inflation outlook is critical to understanding how the SARB might manage monetary policy. Judging from the money and derivative markets, investors are growing increasingly comfortable with the idea that the SARB will keep rates on hold and wait for the weaker growth dynamics to help drag inflation lower. As the charts that follow will show, there is some value in being patient. However, it is not without risks.
  • One of those risks is the performance of the ZAR. It also forms a strong argument for why the SARB might want to hike again to buy insurance against any ZAR depreciation. However, when one considers the weakness of the underlying economy, it is unclear whether the benefits of doing so would outweigh the risks and the negative feedback on growth.


For now, the SARB keeps talking tough, hoping it won’t need to act tough. Increasingly, investors see through this forward guidance and believe that the SARB will leave rates on hold out of fear that hiking again compounds households’ and businesses’ difficulties. There is no demand-pull inflation. Demand is constrained, and the SARB has done about as much as it can to contain inflation. The justified expectation is that the SARB leaves rates on hold later this year.