Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
Executive Summary
- The South African Reserve Bank are expected to reduce the pace of monetary tightening this week from November's 75bp.
- Key measures of headline and core inflation eased in December but inflation expectations remain elevated.
- Consensus is split between 25bp and 50bp rate hike, with the decision seen as a close call between the two scenarios.
MNI SARB Preview - January 23.pdf
Figure 1. South Africa CPI vs. Core CPI Y/Y (%). The shaded region represents the SARB’s target range
Headline CPI inflation remained on a downtrend in December, slowing slightly more than forecast to +7.2% Y/Y. Core inflation unexpectedly eased to +4.9% Y/Y, raising hopes that the worst might be over. A weak auction for South African inflation-linked bonds held days after the release of the latest CPI figures pointed to the perception that we should see disinflationary processes take hold in the coming months. When this is being typed, South Africa’s 10-year breakeven inflation rate sits within touching distance from its 11-month lows printed last week.
Enthusiasm about evidence of cooling price pressures has been somewhat countered by remaining red flags. A BER survey showed that inflation expectations for this year rose to +6.1% Y/Y from +5.9% in the previous quarter, with all social groups revising their forecasts upwards. The poll was taken before South Africa’s energy regulator NERSA approved an 18.65% electricity-tariff hike, the largest in over a decade, which risks pushing inflation expectations even higher. This means that the MPC are under pressure to continue tightening monetary conditions until there is convincing evidence that inflation expectations have been anchored near the mid-point of the target band.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.