Bottom Line:

  • There has been a notable repricing in the market-implied interest rate path since the publication of the March Rates Dashboard. FRA markets have scaled up bets for more aggressive tightening in the months ahead with at least 50bps worth of rate hike risk being priced in. The readjustment higher in interest rate expectations has been driven by five main factors, sustained currency weakness, the impact of load-shedding on food prices, a marked increase in electricity costs, a surprise oil supply cut by OPEC+ and hawkish guidance from the Federal Reserve.
  • While additional policy tightening from the SARB would provide support for the ZAR, which would help ease supply-side inflationary pressures, the SARB will need to consider the impact that additional rate hikes would have on the economy. SA’s economic outlook is already gloomy, with load-shedding expected to intensify in the winter months. Therefore, the SARB will likely conclude its tightening cycle in May with a final 25bps hike. Should the ZAR remain under pressure, the SARB could be forced to hike rates further in the following months. Therefore, although unlikely, further policy tightening beyond May can’t be ruled out.
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