Key points:
- The SARB chose to leave rates unchanged. The various data sets in the report below show that the SARB’s conservatism appears to be warranted. Both the international and the domestic environments have their own set of uncertainties, and making directional decisions amid so much uncertainty risks sending the wrong messaging to the market and undermining the longer-term objectives of the SARB, which remain price stability.
- Developments in the US related to the consequences of the Trump administration’s policies and the lack of clarity on SA’s budget leave the SARB with incomplete information on which to make decisions. Furthermore, international data sets increasingly show that a business cycle slowdown is underway and may well have spillover effects on financial markets. The consequence is that risk appetite could be negatively affected, which in turn could negatively affect emerging market sentiment and the ZAR.
Baseline view:
The decision to hold rates steady holds the least amount of risk given the prevailing circumstances. Although the MPC was split 4/2 in favour of an unchanged decision, there is still a bias to further easing, which will likely only materialise once offshore central banks have already taken the plunge to loosen more. The SARB wants to ensure a healthy interest rate differential between SA and its trading partners, making the ZAR more resilient to any global shock should it emerge later this year.
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