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EMEA Weekly: SARB Watch

ByDanske Markets
Published 01/18/2013, 11:30 AM
Updated 05/14/2017, 06:45 AM
USD/ZAR
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MPC
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SARB stays On Hold On Increased Inflation Risk

Even though there is always some uncertainty regarding the outcome of rate decisions in South Africa, this time we are somewhat more confident that the South African central bank (SARB) will not surprise the markets and that the decision will be in line with expectations. It is broadly expected (by us too) that the SARB will stay on hold, maintaining the key policy rate at 5.0% at next week's Monetary Policy Council (MPC) meeting.

Considering our inflation outlook and the increased risk to the ZAR due to ongoing labour conflicts and the widening of the current account deficit, we no longer expect the SARB to ease monetary policy further, as the door for further easing has been closed. Hence, we expect the SARB to stay on hold throughout 2013 maintaining the key policy rate at 5.0%. Furthermore, we remain bearish on the rand in 2013 with our current USD/ZAR forecasts 8.80, 8.90 and 9.10 in three, six and 12 months respectively.

TCMB To Cut Again
There is no getting away from it -- the Turkish economy is clearly not doing as well as it used to, growth is weak and inflation has been inching down. As a consequence, at its regular monetary policy meeting next week, the Turkish central bank (TCMB) is likely to cut its key interest rate by 25bp for the second month in a row, to 5.25%. Furthermore, a fairly stable lira and fairly benign global environment should mean the risk of rate cuts is fairly low.

Looking forward, we believe the TCMB is likely to continue cutting rates as the outlook for inflation is benign and positive global risk sentiment is likely to contribute to making the lira fairly stable.

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