Should South Africa’s central bank — the SARB –\u00a0strike first with an interest\u00a0rate hike before being forced into it?\u00a0 Gill Marcus and her team started their two-day policy meeting today and no doubt\u00a0have\u00a0been\u00a0keeping an eye on happenings in Turkey, a place where a pre-emptive rate hike (instead of blowing billions of dollars\u00a0in reserves) might have saved the day.<\/p>\n
The SARB is very different from\u00a0Turkey’s central bank in that it is\u00a0generally less concerned about currency weakness\u00a0due to\u00a0the competitiveness boost a weak rand gives the\u00a0domestic mining sector. This time things\u00a0might be a bit different. The bank is battling not only anaemic growth but also rising inflation that may soon bust the upper end of its 3-6 percent target band thanks to a rand that has weakened 15\u00a0 percent to the dollar this year.<\/p>\n
Interest rates of 5 percent, moreover, look too low in today’s world of higher borrowing costs\u00a0 –\u00a0real interest rates in South Africa are already negative while\u00a010-year yields\u00a0are\u00a0around 2.5\u00a0percent\u00a0(1.5 percent in the United States). So\u00a0any rise in inflation from here will leave the currency dangerously exposed.<\/p>\n
Therefore staying behind the curve\u00a0could prove a mistake, say Tradition Analytics:<\/p>\n
\nThe fear is that, by continuing to run very low interest rates on the premise that it is protecting domestic economic growth…the central bank is setting up the economy for less price stability, more uncertainty and higher variability in\u00a0the rand outcome.\u00a0\u00a0South Africa can ill-afford another blow-off in the rand…Dismissing the possibility that the SARB may be forced into a\u00a0hike is dangerous as another bout of rand weakness could push the inflation rate above the 7% mark at which point the question then\u00a0morphs into\u00a0how much above the 6% level the SARB will tolerate.<\/em><\/p>\n<\/blockquote>\n
Analysts at Barclays write:<\/p>\n
\nOther EM central banks such as Turkey, Brazil and Indonesia have tightened their respective policy stances of late and the\u00a0rand \u00a0might come under selling pressure over the medium term from a relative real interest rate perspective if inflationary pressures gain traction.<\/em><\/p>\n<\/blockquote>\n
Analysts polled by Reuters expect the SARB to make no\u00a0move on Thursday, though some reckon a change in stance\u00a0to neutral\u00a0from dovish is possible.\u00a0\u00a0Swaps markets, on the other hand, are pricing a 20 basis-point tightening this month and 100 bps over the next 12 months, moving away from the rate cuts they were expecting\u00a0just a few weeks back.<\/p>\n","protected":false},"excerpt":{"rendered":"
Should South Africa’s central bank — the SARB –\u00a0strike first with an interest\u00a0rate hike before being forced into it?\u00a0 Gill Marcus and her team started their two-day policy meeting today and no doubt\u00a0have\u00a0been\u00a0keeping an eye on happenings in Turkey, a place where a pre-emptive rate hike (instead of blowing billions of dollars\u00a0in reserves) might have […]<\/p>\n","protected":false},"author":7384,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-661559","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/661559","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/7384"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=661559"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/661559\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=661559"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=661559"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=661559"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}