In the first monetary policy committee meeting (MPC) for 2016 the South African Reserve Bank (SARB) hiked the repo rate as expected by 50bps to 6.75%. The MPC explicitly mentioned the real repo rate in its statement and clearly believes that policy remains accommodative and that the “real repo rate remains low given the higher than expected inflation over the period”. Investment strategies and suggestions would be to keep a close eye on any sell offs which could result from further market uncertainty. The play currently remains with the medium to longer term investments Looking at the 60 month Uncapped PII, Capital Accumulator or Capital Escalator One (higher risk appetite) are ideal investment vehicles for the longer term horizon.
Last week the Fed kept interest rates unchanged as expected, and said the US economy is still on track for moderate growth and a stronger labour market even with “gradual” rate increases.
The Bank of Japan dropped their interest rates into negative territory as well, adopting a rate of -0.1% from 0.1% previously. This surprised economists who were expecting the central bank to leave rates unchanged. The BoJ will not be expanding their QE program beyond what they are currently doing. They also revised their inflation expectations down and pushed back the timescale for reaching their 2% inflation target by 6 months. They expect CPI y/y to hover around 0% “for the time being”.
It’s a busy week on the local front in terms of data releases the Standard Bank South Africa PMI is scheduled for release on Wednesday at 09h15. While slightly higher than the Barclays PMI measure, the trend for January is similar. Bloomberg consensus expectations are for the index to have slipped in January to 49.0 pts from 49.1 pts in December. The SARB releases the gross gold and foreign exchange data on Friday at 08h00. Bloomberg consensus is pencilling in gross reserves to increase to $45.83bn in January from $45.79bn in December, while net reserves are expected to have increased to $40.83bn in January from $40.65bn in December.
On the international front US PMI data for January is out today and non-farm payrolls data for January will be released on Friday. Reuters is expecting NFP to come in at 190k for January, down from 292k in December. In the UK we have the BOE meeting on Thursday we expect rates to remain unchanged.
*Article Compliments of Standard Bank Global Markets