After the Reserve Bank’s May monetary policy committee (MPC) meeting, where policy rates were hiked by 50 basis points (bps), the market continued to price in about 50bps of hikes by the end of 2023, despite this being less than the Bank’s own Quarterly Projection Model (QPM) suggests.

Among the factors driving the Bank’s seemingly hawkish stance are sticky core inflation, the weakness in the rand relative to the dollar and the rise in sovereign risk. The latter two were triggered by the diplomatic falling out between SA and the US, and have now completely unwound, back to where they were before the falling out. If the Bank’s communication is consistent with recent MPC rhetoric, the committee should reflect these factors and sound less hawkish in July. ..

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