Key Takeaways: SARB in "Wait & See" Mode, Mixed Dovish/Hawkish Factors at Play

• Rates kept at 3.5% (as expected), Hawkish QPM model broadly ignored
• End 2021 inflation forecast lowered to 4.2% vs 4.3% prior, 2022/23 forecasts stay the same at 4.4% & 4.5%, and says uptick in inflation is transitory, reassuring markets that the MPC would look through transitory factors. Noted wage negotiations, ZAR risks and Energy prices as risks to CPI
• Growth revised higher: 1Q21 now +2.7% vs 0.2% prior, End-2021 4.2% vs 3.8% prior, 2022: 2.3%, 2023: 2.4%.
• With third wave risks rising and unemployment still extremely high, Kganyago is likely to try to hold off hiking for as long as possible to give the SA recover as much room as possible to establish a firmer foundation

Key phrase revisions:

• Overall risks to the inflation outlook appear to be "to the upside" – changed from "balanced"- Also: monetary policy to remain accommodative over the medium term, "even with steps taken to normalise interest rates in response to rising inflation." Changed from "keeping rates on hold "for as long as inflation remains contained."
• Overall, the SARB remains in "wait and see mode" with a number of hawkish and dovish factors filtering through from this meeting. For now, the SARB is in no rush to hike, but has acknowledged some uncertainties and risk factors are in the mix.

Markets:

• Bond markets gained bullish momentum on higher growth projections and lower year end inflation – buoying duration bets at the back end of curve. 2Y yields also seen paring a portion of yesterday's CPI scare to drift -5bp lower.
• USD/ZAR reaction was somewhat more muted, but pulled lower towards 14.00, supported by broad-based USD weakness – but has yet to clear the level.