The SARB left rates unchanged for the fifth consecutive meeting and sounded decidedly hawkish in its guidance. It had no choice and, if anything, could’ve even made a case for lifting rates given the stubbornness of inflation and the numerous forces at play that will likely keep inflation elevated for longer than initially anticipated.

Furthermore, the country’s risk profile has deteriorated. It remains on the FATF greylist, its debt trajectory has not abated, political risk has been as high as ever during the past 30 years of democracy, and the global economy is no longer powering ahead to bolster SA’s terms of trade.

It is the kind of environment that will keep the ZAR on the defensive for a while to come. While in the next iteration of this report, we may delve into market positioning ahead of the elections, in the run-up to the elections, one should expect a fairly skittish ZAR that struggles to capitalise on any bouts of USD depreciation.


BASELINE VIEW: The ZAR had to remain conservative or risk another bout of unwelcome ZAR volatility. This will remain the overriding theme to prevent the ZAR from gaining much traction in the lead-up to the elections. It offers exporters an extended window of opportunity to secure attractive forward rates and lock in forward cover. It is far from guaranteed that the ZAR will automatically depreciate from such undervalued levels after the elections.

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