South African Rand: SARB tightening and fiscal risks – BNY
Finance South African Rand: SARB tightening and fiscal risks – BNY BNYs Bob Savage argues that South African Reserve Bank (SARB) is likely to lead emerging market tightening as South Africa reverses its easing path and hikes the repo rate back to 7.0%. The report notes improving inflows and mining-related support for South African Rand (ZAR), but stresses that higher U.S. yields and Fed policy set the bar, requiring more forceful Emerging Markets (EM) moves to maintain credibility and stabilize South African government bonds (SAGBs). SARB leads EM rate reversal “A shift in the Feds policy stance has reset the benchmark for emerging market central banks. On the back of surprise hikes in Asia to defend currencies and avoid excessive outflows, there are many candidates in EM that can follow, especially if fiscal performance is also under pressure, or other idiosyncratic factors come into play. Turkey is seen as a candidate, especially with growing reserve stress, but South Africa is likely to take the lead this week as it reverses course and hikes the repo rate back to 7.0%.” “This marks a sharp reversal from the easing path the SARB had established before the conflict, which had been reinforced by a lower inflation target and