巴黎银行-新兴市场-宏观策略-南非：谨慎而坚定地向SARB伸出援助之手-20190320-8页_816kb

South Africa – Cautious but Steady Hand for the SARB

Core Content Summary

This report provides an analysis of the South African Reserve Bank (SARB) policy outlook and inflation forecasts for 2019 and 2020. It emphasizes the SARB's cautious yet steady approach to interest rates in light of the country's benign core inflation and emerging downside risks to economic growth.

Key Messages

• CPI Inflation: South Africa's headline CPI inflation for February 2019 was 4.1% y/y, while core inflation was 4.4% y/y. The 'core-core' inflation index, which tracks price pressures more sensitive to the output gap, was 0.1pp below the official core measure, indicating economic slack.
• Inflation Target: The SARB's inflation target range is 3-6%, with the report expecting 4.3% average CPI inflation for 2019 and 5.0% for 2020, both below the market consensus.
• GDP Forecast: The report suggests that the SARB is likely to downgrade its 2019 GDP growth forecast from 1.7% due to increased electricity supply cuts, which have materialized as downside risks.
• Policy Rate Decision: The SARB is expected to keep the policy rate at 6.75% during its March 2019 meeting and likely throughout 2019, despite rising inflation pressures.
• QPM and Rate Hikes: The SARB's Quarterly Projection Model (QPM) is seen as a tool for signalling future rate hikes, even if the actual policy rate remains unchanged. The report anticipates that the QPM may imply 50-75bp of rate hikes over the medium term, reinforcing a hawkish bias in the MPC's stance.
• ZAR and FX Risks: The report highlights that ZAR weakness and higher global oil prices are expected to push CPI inflation back above the mid-point of the target range in Q2. The SARB may use the QPM to support the ZAR and signal a more cautious stance on rate cuts.
• Market Expectations: Forward rate agreements currently price in about 18bp in rate hikes over the next two years, but the report expects market expectations to taper off as USDZAR approaches its fair-value level of 13.75.
• Sovereign Credit Rating: The sovereign credit rating is under pressure, with the report suggesting a negative outlook from Moody's is likely.

Trade Ideas

• 2y Payer Position: The report recommends maintaining a 2y ZAR IRS payer position, which is seen as offering a decent risk-reward profile.
• CDS Strategy: It also suggests buying protection in South Africa and selling protection in Turkey, based on relative economic and currency conditions.

Key Views and Assumptions

• Structural Factors: The structural underpinnings of low inflation include lower unit labour costs and crimped corporate profitability.
• Constructive Outlook for EM Currencies: The report believes that emerging-market currencies have a constructive outlook, which supports the SARB's policy stance.
• Market Signalling: The SARB's QPM is used to signal policy direction, even though it does not imply a fixed rate path. The MPC aims to maintain a high bar for rate cuts and signal a hawkish stance.
• Downside Bias: The report notes a downside bias in the SARB's inflation and GDP forecasts, as both have consistently underperformed the central bank's expectations over the past 18 months.

Regulatory and Disclaimer Information

• The document is non-independent research for the purpose of UK Financial Conduct Authority rules and is intended for marketing purposes.
• It is not investment research under MiFID II and not subject to independent verification.
• The document contains performance data based on back-testing, which is for illustrative purposes only and does not guarantee future results.
• Confidentiality and Restrictions: The document is confidential and intended for professional clients and eligible counterparties only. It is not to be used for investment advice or as a substitute for independent judgment.
• Legal Considerations: The report is not a prospectus or public offering in any jurisdiction, and transactions based on the information may involve high risk and volatility.
• Conflicts of Interest: BNPP may have financial interests in the entities or instruments mentioned, and may engage in transactions inconsistent with the views expressed in the report.

Conclusion

The report underscores the SARB's cautious and steady policy stance amid moderate inflation and growing economic uncertainties. It highlights the importance of the QPM in signalling future policy intentions and the potential for rate hikes in the medium term, while maintaining a hawkish bias. The downgrade in GDP forecasts and increased inflation pressures are key drivers of the central bank's policy inaction, with a focus on currency stability and credit rating concerns.