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SOUTH AFRICA: Better-Than-Expected Inflation Data Boosts Dovish SARB Bets

SOUTH AFRICA
  • South Africa's CPI inflation cooled more than expected to +4.6% Y/Y in July, the lowest level in three years, pushing the ex-post real interest rate to an 18-year high of 3.65%. Market participants added dovish SARB bets, with 1x4 FRA contracts now trading 29bp shy of the 3-Month JIBAR rate, while 4x7 contracts sit 63bp south of the benchmark rate.
    • Commerzbank believe that "inflation dynamics, especially in the recent months, look good enough to justify a rate cut by the SARB in Sep."
    • HSBC lowered their CPI forecasts by 20bp each  to +4.7% Y/Y in 2024 and +4.6% Y/Y in 2025. They still forecast a 25bp rate reduction next month, with a total of 75bp of easing over 2024-25, taking the key rate to 7.50% by mid-2025.
    • JP Morgan's base case for the Sep SARB meeting is a 25bp cut, but they continue to assign a 40% probability to a 50bp cut next month (or alternatively in Nov). They now expect inflation to average at +4.7% Y/Y this year (from +4.8%) and at +4.3% Y/Y in 2025 (from +4.5%). They expect 100bp in cuts by 1Q25.
    • Nedbank maintained their call for a 25bp rate cut at each of the remaining SARB meeting this year (Sep and Nov) and now see a faster moderation in inflation below the target mid-point, which can happen in Sep rather than Oct.
  • ActionSA leader Herman Mashaba told EWN that his party is in talks with the African National Congress (ANC) on possible cooperation in ousting the Democratic Alliance (DA) administration in Tshwane. He described his party's relationship with the DA in Tshwane, where they currently govern together, as toxic and abusive.
  • Statistics SA admitted that the collection of some key data from Census 2022 was flawed and hence the data cannot be published. As a result, income, employment, mortality, and fertility data will not be released.
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