Monetary Outlook Diverse

A degree of fragility has returned to the markets and participants are looking increasingly to monetary policy as the solution to restore broad-based risk appetite.

There has been further speculation of accommodative policy from the European Central bank (ECB), in a soft growth and inflation environment in the Eurozone, and US growth data has not been convincing of a strong recovery. Moreover, slowdown fears in China persist.

Looking to the week ahead locally, the main attraction will be the South African Reserve Bank (SARB) policy decision, with some colour provided on the outlook for this by CPI. An unchanged decision is favoured, even though CPI is expected to breach the upper end of the 3%-6% target band. SARB is likely to tolerate this in expectation that CPI will peak in the second quarter of the financial year. The timing of this peak is likely to be reaffirmed by the recent gains made by the rand.

Growth sentiment conversely has soured notably, with the mining sector under pressure as there is still no end in sight to the strikes. Impala Platinum has said that it will take at least three months for normal production to resume once operations restart, which will have knock-on effects in terms of export growth and thus the trade and current account balances.

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