The current local backdrop remains challenging. Despite cyclical factors turning supportive of the local economy, the political landscape has once again soured, bringing into question policymakers’ ability to take the hard decisions required to implement much-needed structural reforms. A continuation of the status quo will put growth under severe pressure as optimism, and hence investment into the economy, continue to slow.

The country’s inclusion into the Citi World Government Bond Index relies on an investment grade rating of our local currency debt by both Moody’s and S&P. If SA loses both investment ratings, it would trigger mandated selling of domestic government bonds. At the time of writing (end-April), SA was on the cusp of losing at least S&P’s investment rating for its local currency debt.

Notwithstanding the tough local environment, there is still sufficient momentum to suggest that this year will produce better growth than last year. Also, CPI inflation, which reached 6.7% at the end of 2016, moderated to 6.1% by March.

At this stage, we do not think the SA Reserve Bank will cut interest rates amid high political uncertainty and persistent risks to the currency. That said, if inflation falls meaningfully and growth stalls, it is not inconceivable that rates could fall modestly.