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Elisabeth Andreae, analyst at Commerzbank, notes that the South African central bank (SARB) left its key rate unchanged at 6.75%, but its statement provided a surprise.

Key Quotes

“It corrected its growth and inflation outlook clearly to the downside in some parts and signalled a rate cut to 6.5% for early 2020, whereas before it had signalled a rate hike for 2019.”

“The SARB’s next rate decision is in July. The subdued growth outlook and the prospect of a rate cut are likely to put pressure on the rand.”

“The SARB significantly adjusted its growth forecast for 2019 to the downside. For Q1 2019 it expects a fall in overall economic performance with the result that it now only foresees an average growth rate of 1% for 2019 (previously: 1.3%). For 2020 and 2021 it continues to expect a moderate acceleration to 1.8% and 2% respectively.”

“As had been generally expected the central bank left its key rate at 6.75%. However, as far as the rate outlook is concerned it performed a surprise U-turn. Whereas at its last meeting in March it had signalled a rate hike for 2019 it now signalled a rate cut for early 2020.”

“The rate cut signalled by the SARB is likely to put pressure on the rand, but the downside pressure from this side is likely to be limited. Forward rate agreements on the money market had already begun to signal increasing rate cut expectations ahead of the meeting. We will nonetheless revise our rand exchange rate forecast in early June.”