SARB Analysis: Cautious on S/T Risks to CPI, Medium-Term Factors Still Balanced

SARB Statement Analysis:

• Overall, a broadly cautious meeting from Kganyago – highlighting short-term risks to the pricing forecast into year-end, but reaffirming its approach to look through transitory factors towards broadly balanced medium-term disinflationary factors
• As expected, FY21 growth was revised upwards to 5.3%. 2021 avg CPI revised higher to 4.3% vs 4.2% prior, while 2022 & 2023 metrics remains balanced and unchanged at 4.2% & 4.5% respectively.
• Gov Kganyago discussed the 3-4% inflation target, but said this would come at an appropriate time and is still broadly under discussion
• Kganyago also downplayed the likelihood of the SARB tracking the Fed's policy path, unless higher US rates translated into elevated second round effects on SA's domestic inflation outlook
• This is broadly in line with our base case – which sees rates unchanged into 1Q22. Risks to this view, however, come from potential upside surprises in food, oil, wages and producer prices into year-end.

Markets Response:

• Slight weakness seen in ZAR during the statement, which has now been pared as higher US equities and a lower USD bolster global risk sentiment.
• SAGBs trim bull flattening gains somewhat: 2Y +0.9bp, 10Y +0.2bp, 15Y -2.9bp, 30Y -3.0bp