So what is going to happen next week when the Monetary Policy Committee (MPC) meets for its two-day session to discuss interest rates? Vivienne Taberer portfolio manager at Investec Asset Management, looks at three scenarios that should be considered.
50 bps down
This scenario is almost inconceivable given the current environment. In the highly unlikely event that there is a rate cut, it would weaken the outlook for the long end of the bond market going forward and give equities a boost in the short term. Cash yields would immediately start to discount further cuts.
No change
The tough decision is whether to keep on hold or hike rates. Inflation expectations are likely to be the deciding factors, as a lot of data has been on the weaker side. The market has moved towards this view (of no change) over the last couple of weeks, so the market reaction is likely to be muted if no change in interest rates is announced. The market will probably have a little bit of a bid across the board.
50 bps up
Should rates be hiked by 50bps, we might see a marginally positive reaction from the Rand. The equity market won’t like it very much and we would probably see cash rates and bond yields move a little higher.