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Hot CPI Release Prompting Sell-Side to See Larger SARB Hikes

SOUTH AFRICA
  • Following yesterday’s CPI release, JP Morgan write that they see the SARB raising rates by 50bps in July, as the more assertive Fed, elevated inflation profile and upside risks to inflation push the board. They see a further 50bps in hikes in September and November (up from their prior forecast of 25bps) – as such year-end rates should be at 6.25% (up from their prior view of 5.75%). Nonetheless, hikes as large as 75 – 100bps remain a distinct possibility.
  • On inflation, JPM maintain their above-consensus inflation path view on the back of projected food inflation.
  • Commerzbank see yesterday’s CPI release as fuelling market expectations that the SARB will hit the brakes even harder in July and will hike the key rate by 75bp. At its last meeting in May it had already increased the speed of the hikes to 50bp.
  • That means the SARB’s stability orientated monetary policy remains an important supporting factor for the South African rand. The more interest rates rise though, the stronger economic concerns are likely to get. That might put pressure on the rand, in particular in times of increased risk aversion.
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  • Following yesterday’s CPI release, JP Morgan write that they see the SARB raising rates by 50bps in July, as the more assertive Fed, elevated inflation profile and upside risks to inflation push the board. They see a further 50bps in hikes in September and November (up from their prior forecast of 25bps) – as such year-end rates should be at 6.25% (up from their prior view of 5.75%). Nonetheless, hikes as large as 75 – 100bps remain a distinct possibility.
  • On inflation, JPM maintain their above-consensus inflation path view on the back of projected food inflation.
  • Commerzbank see yesterday’s CPI release as fuelling market expectations that the SARB will hit the brakes even harder in July and will hike the key rate by 75bp. At its last meeting in May it had already increased the speed of the hikes to 50bp.
  • That means the SARB’s stability orientated monetary policy remains an important supporting factor for the South African rand. The more interest rates rise though, the stronger economic concerns are likely to get. That might put pressure on the rand, in particular in times of increased risk aversion.