Traders cut SA rate-hike bets on Iran peace deal

Traders have scaled back bets on additional South African interest-rate hikes after a US-Iran peace deal sent oil prices tumbling, potentially reducing inflationary pressures.

Forward-rate agreements are now pricing in 15 basis points of tightening at the South African Reserve Bank’s 23 July policy meeting, down from 30 basis points a week ago. The contracts are pricing in a total of 32 basis points of rate hikes this year, compared with 70 basis points a week ago. That implies just one full quarter-point increase by the November rates meeting.

Policymakers last month raised borrowing costs by 25 basis points to 7%, delivering their first increase in three years as inflationary pressures intensified because of the Iran war. They also signalled that further tightening may be warranted if the conflict drags on.

Inflation in Africa’s biggest economy probably quickened to 4.7% in May from 4% a month earlier, according to the median estimate of 18 economists in a Bloomberg survey. The central bank targets inflation at 3%.

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Following the weekend’s peace agreement, however, investor expectations of average inflation over the next five years as measured by breakeven rates fell by 16 basis points to 4.23%.

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