“We think the stabilisation and subsequent appreciation of the rand exchange rate since the end of January – [the rand] is currently below 10.40 against the dollar, its strongest this year – should support a marginal improvement in the South African Reserve Bank's [SARB] inflation forecast, and ensure rates stay on hold in the upcoming Monetary Policy Committee meeting,” HSBC said in a statement.
HSBC added that the current currency stability nevertheless comes at a time of relative anaemic growth, coupled with rising inflation and low manufacturing production figures.
“We expect the SARB to signal some cautiousness even if rates are unchanged, which may mean the market finds it difficult to squeeze out all rate hike pricings from here,” HSBC explained.
In January, the SARB raised rates by 50 basis points in an effort to curb the rand’s deterioration and escalating inflation.
GDP indicators such as mining and manufacturing output have however declined considerably, with first quarter data showing considerable contraction.
The Purchasing Manager’s Index declined to 49.9 in December, below the 50-point mark for the first time since April 2013.
South Africa’s unemployment rate took the same downturn by increasing to 25.2 per cent in the first quarter of the year from 24.1 per cent in the third quarter of 2013.
(READ MORE: S.Africa's unemployment rate accelerates to 25.2%)
“We expect the SARB to lower its GDP growth projections for 2014 during the course of the year, as growth risks materialise in the data. The SARB currently expects GDP growth of 2.6 per cent in 2014 and 3.1 per cent in 2015, compared with our more pessimistic forecast of 1.8 per cent in 2014 and 2.7 per cent in 2015,” said HSBC.
“Despite the currency firming, and plethora of disappointing growth data, we expect the MPC statement to remain hawkish, given elevated inflation risks and the SARB’s credibility as an inflation-targeting central bank.”
The next MPC meeting is sheduled for 22 May.