The Daily Forex Market Report

21 November 2024

Good morning

“Dear SARB.  We know that bending to the will of the people is not what central banks are all about but with our economic growth struggling to get out of first gear, with unemployment sitting at 32.1% and with consumer inflation now at just 2.8% surely there is enough to justify a 50bps rate cut today?  Yours truly, South Africa.”  

These are the mid rates at 6:55 today:

Market News

• There was weakness in the Rand yesterday, but if our exchange rate is collateral damage for the greater good, then I’m sure we will be okay with that. We opened at R18.05 to the dollar and fell to R18.16 on local headlines.
• Today is all about the SARB and their last chance to adjust SA’s monetary policy for the year.  There are many analysts out there of the firm opinion that a 50bps rate cut is more than justified but those same analysts are all warning that the SARB is well known for its cautious approach, and that just a 25bps cut is the most likely outcome.  Yesterday’s massive downward move in our CPI reading from 3.8% to 2.8% puts inflation at a four year low, and significantly below the SARB’s 4.5% mid-range target, and in a perfect world this would all but seal a 50bps cut today, but unfortunately it seems like an outsized cut would be a big surprise if it materialised.
• The Rand fell back on yesterday’s CPI report as a lower interest rate is now a certainty, and probably the only reason why we didn’t fall further is that despite inflation coming in at 2.8% the overwhelming consensus is for just a 25bps cut and not bigger.  Some analysts have pointed out that the SARB could frame a smaller cut when referencing the chances of inflation increasing over 2025 thanks to a combination of Trump’s inflationary policies and a stronger Dollar.  Others are also talking about murmurs that the SARB wants to lower its inflation target to 3% and so 2.8% is only just below this new level, but whatever the reasoning it seems like 25bps is all we should expect.
• The following is from Business Report and is a rather scathing:  Old Mutual Group chief economist Johann Els said the consumer goods inflation number suggested that there was no demand price pressures on inflation, and everything has surprised to the downside over the past several months. Els said this economy was running at a very low inflationary pace, thus suggesting that the SARB should cut rates by 50 basis points. “If they don’t, I think they are making a serious policy error. I think the Reserve Bank might already be targeting inflation at 3%. That’s morally wrong. They should be using the official target of 4.5% until the target has been changed. Inflation at 2.8%, consumer goods inflation at 1.9%, core inflation at 3.9%, cut rates by 50 basis points or lose credibility. Again, they should cut by 50 basis points. I don’t think they will.”
• Local market data today sees the SARB announcement at 3pm.
• Possible USD mid rate trading ranges in the Rand today are R17.95 and R18.25.

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