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SARB: rates unchanged today, probable hike in November and downgrades - TDS

FXStreet (Córdoba) - Paul Fage, Senior Emerging Markets Strategist at TD Securities takes note of today’s decision of the South African Reserve Bank to leave rates unchanged as expected by most analysts.

Key quotes:

At today’s MPC meeting the SARB kept its policy rate, the repo rate, on hold at 6.0%. This is in line with our and the almost unanimous consensus expectation. The press statement painted a rather gloomy picture of the South African economy. The SARB has revised down its forecasts for GDP growth in 2015, 2016 and 2017 all by 0.5ppt to 1.5%, 1.6% and 2.1% respectively.”

“The SARB has revised down its near-term forecasts for CPI inflation, which is seen peaking at 6.7% Y/Y in Q1 2016 compared to a previous forecast of 6.9%. However, its medium-term forecasts have been revised slightly higher. The SARB thinks the overall risks to the inflation outlook are to the upside.”

“We think there is a good chance of a hike at the November meeting, particularly if the Fed adopts a more hawkish stance or even hikes rates in the interim, or if the rand weakens further. The downwards revised growth projections will make it harder for the government to avoid ratings downgrades.”

“The weak growth outlook for South Africa will, in our view, continue to make the rand one of the more vulnerable EM currencies. Weak growth will also make it harder for the government to control the budget deficit and this could lead to downgrades by one or more of the rating agencies.”

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