(23 MAY 2019)DAILY MARKET BRIEF 2:ZAR set for a rebound ahead of SARB meeting

Ensuring its seat as South African President, Cyril Ramaphosa is facing challenges looking forward. Threats of a potential sovereign debt downgrade from Moody’s during its next assessment in November amid domestic issues relating to weakening Cabinet credibility, a worsening government budget and subdued policy reactions could have serious consequences on capital flows and the South African rand. Yet the South African Reserve Bank monetary policy meeting should give a little boost to the ZAR.

The SARB, although not expected to take any further actions on its repurchase rate (currently: 6.75%) at today’s meeting, should maintain its hawkish bias. Despite inflation data for April pointing to a slowdown, with y/y headline and core figures at 4.40% (prior: 4.50%) and 4.10% (prior: 4.40%), located in the lower part of the target corridor of 4.50%, the SARB will confirm its willingness to act if upside risk associated with the medium-term inflation outlook prevails, which should ultimately support the ZAR.

Currently trading at 14.4850, USD/ZAR is heading along 14.4055 short-term.