Watch the live press conference of the South African Reserve bank here.
Volatility on the South African Rand increased as the Governor Lesetja Kganyago started speaking, and the Rand gained vs. the USD as the USDZAR reached a new monthly low of 14.64. The Rand also strengthen against the Euro and reached a low of 16.26.
The governor said the South African GDP forecasts had been lowered and said the risks were to the downside, due to trade wars and geopolitical tensions. The central bank anticipates Q3 GDP to be weak and anticipate future growth to remain weak as well, as the Business confidence indicator has been trending lower.
Mr. Kganyago also said the inflation had been below the mid-point of the target range. We note that annual inflation in October was 3.7%, and lower from 4.1% in September.
The Central bank opted to keep rates unchanged at 6.5%, but given the weak outlook for GDP, and inflation, two members opted to vote for rate cuts of 25 bps, while three voted to keep rates unchanged.
As only one member needs to switch their vote at the next meeting, and the outlook for the economy is weak, I note that there is a heightened risk that the South African Reserve bank opts to cut rates. Overall, the live press conference and the statement indicate that the central bank will remain dovish unless the economy surprises.
The South African Rand started to give up its gains as the governor was about to answer questions.