Week Ahead: CPI inflation forecast to have slowed to 5.3% y/y in 2017 from 6.3% y/y in 2016 on the dissipation of supply side price pressures

18 Jan 2018

Annabel Bishop

Chief Economist

Figure 1: SA Monetary Policy Committee (MPC) meeting dates for 2018

Currency outlook for the week ahead and foreign portfolio flows:

Figure 2: Purchasing price parity value of the rand
Over the past week, the rand appreciated by 1.7%, to R12.21/USD, to be the second best performer out of a basket of24 emerging market currencies. Most emerging market currencies gained over the course of the week, partly on US$weakness. Specifically the US$ index has declined towards levels last seen in 2015 (see figure 7) on concerns of a possible US government shutdown. Additionally, there has been some speculation that the continued lift in global growth will see developed market central banks, aside from the US Fed, normalise monetary policy.
 
Domestic influences on the currency continue to be linked to positive market sentiment in relation to the ANC elective conference outcome in December. Additionally, the SARB MPC decided to keep the repo rate unchanged at 6.75%with the market having priced in a 40% chance of a reduction. As such, the interest rate decision is likely leading marginal support to the rand.
 
In the week ahead, the rand is expected to trade in a range of R11.66/USD – R12.66/USD, R14.45/EUR - R15.45/EURand R16.40/GBP - R17.40/GBP.

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