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Money Market FundsLast week’s SARB decision did not go down well. The ZAR has capitulated. One could argue that it coincided with the USD appreciating and the VIX temporarily spiking, but that would not explain the full extent of the move. This was clearly a market reaction to a decision that the markets disagreed with. The result is a substantially weaker ZAR that is threatening to break back above the 17.0000/dlr and which ironically will accomplish exactly the opposite of the SARB’s mandate to promote price stability.
Of course, the ultimate test will be whether the USD-ZAR sustains these levels and weakens further, but irrespective, it is not a risk the SARB should be taking. It has only just adopted a 3% inflation target, and it needed to build its credentials as an inflation fighter. Last week’s decision was counterproductive and might force the SARB to do more than it might have done had it hiked.
