"Serious upside risks to the inflation outlook remain" - South African Reserve Bank Governor Lesetja Kganyago.

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The Pound to Rand exchange rate appeared to be finding its feet near notable technical support on the charts ahead of the weekend and after the South African Reserve Bank (SARB) signaled that its next move would likely be an interest rate cut if inflation remains contained during the intervening months.

South Africa's Rand had climbed to four-month highs against some currencies including the Pound, Dollar and Euro before falling in the latter half of the week when the reserve bank left its cash rate unchanged at 8.25% and suggested it could be cut by the early months of next year. 

New forecasts indicated benchmark borrowing costs could fall back to 7.5% or below next year if local inflation remains largely within the 3% to 6% target band over the period.

"At the current repurchase rate level, policy is restrictive," Governor Lesetja Kganyago said in July's statement.

"Serious upside risks to the inflation outlook remain. In light of these risks, the Committee remains vigilant and decisions will continue to be data dependent," he added. 

Above: Pound to Rand rate shown at daily intervals with Fibonacci retracements of 2023 rally indicating possible areas of technical support.

South African inflation was reported at 5.6% for June on Wednesday while the reserve bank cut its full-year forecast from 6.2% to 6% on Thursday.

It also projected the core inflation rate, which excludes food and energy costs, would come in at around 5.2% this year and fall over subsequent years. 

"According to the SARB’s projections, if rates remain on hold, the real repo rate will rise to 3.25% by mid-2024," says Kim Silberman, a strategist at Matrix Fund Managers. 

"Consequently, we think this will be the end of the hiking cycle," she adds. 

The forecast for economic growth was also lifted from 0.3% to 0.4% for 2023 this week while the decision to leave interest rates unchanged was widely expected.

All of the forecasts for inflation and interest rates will be sensitive to changes in commodity prices and other costs over the coming months. 

Above: Pound to Rand rate shown at weekly intervals with selected moving averages.