BofA: All Change - SARB Not Done Hiking

Bank of America write “we now think SARB is likely to hike at the November MPC before initiating cuts in 2H24. The near-term inflation outlook has worsened.”

• “Near-term fiscal risks are likely concerning for the SARB too.”
• “We estimate headline CPI reaching 5.2% in September, 5.7% in October, and averaging 5.6% in 4Q 23. We now expect CPI of 5.5% at year-end 2023 compared to 5% in our previous baseline associated with a dovish outlook for monetary policy.”
• “We now expect the SARB to hike 25bp on November 23, taking the policy rate to 8.5%, and thereafter remaining flat until the end of 1H24. We are further pushing our first cut expectation to July 2024 (previously May 2024).. This means cumulative cuts of 50bp in 2024 and 100bp in 2025. We now see inflation returning to 4.5% only in 2025. CPI is likely to average 5.3% in 2024.”
• “A combination of rising oil prices, a higher-for-longer rates narrative and fiscal risks in EM are likely to weaken EM FX further. The rand is closely correlated with the broader dollar and EM FX; hence the stronger dollar should continue to weaken the ZAR, in our view. We opened a long EURZAR trade at 20.15 (current: 20.5, target: 21.15). The risk is significant fiscal stimulus in China that will drive the rand stronger.”