Possible interest rate cut forecast for SA

Interest rate cut

Johannesburg – Bank of America Merrill Lynch is forecasting another 50 basis-point (bp) rate cut for South Africa in November and believes the country’s first rate hike since 2008 is only likely to occur in the first quarter of 2014.

The bank also forecasts that inflation is likely to remain within the South African Reserve Bank's (SARB) 3%-6% target range over the coming year.

“In the very near term‚ we expect a little more inflation pressure in Q3 2012 than we had previously but this is still likely to dissipate in Q4. In H1 2013‚ we also expect stronger inflation relative to our previous forecasts but expect this to ease nicely late into the year‚” the bank said in a report.

“All things considered‚ we expect headline consumer price index to back up to 5.4% by September on higher petrol prices.

Thereafter‚ despite food price inflation picking up from 5.4% in July to 9.7% in December‚ weaker goods (ex energy) inflation into year-end from a sharp slowdown in economic growth to below 2% annualized in both Q3 and Q4‚ will likely combine to take headline inflation back down to 5.2% by year-end. 

"If is also worth noting that the rally in US dollar/rand over the past week to the 8.20 level may also lead to some petrol price relief from October‚ assuming the Rand holds these levels in coming days and weeks.

“From the perspective of the SARB‚ the combination of the weaker activity data we expect in coming months together with a probable moderation in inflation from October will likely provide the backdrop for a 50bp cut in November‚ in our view‚” the bank added.
It believes the late 2012 trend toward lower inflation will reverse into 2013‚ adding that it has revised its inflation forecasts higher for H1 2013.

“In the main this represents ongoing pass-through into food price inflation which will likely accelerate to 14% year-on-year in H1 2013‚ on average‚ as categories such as meat and diary respond to higher maize prices with a lag of about 9 months in our inflation model. 

"While this upward effect is tempered by a further moderation in goods (ex energy) inflation‚ headline nevertheless moves higher to 5.6% by mid-year‚ with a chance of a temporary peak around the 6% mark moving into Q3.

"Evidence of higher inflation will likely put a break on any further easing by the SARB‚ in our view‚ and is the principal reason we forecast only one further rate cut to come (to 4.5%) in November this year‚” the bank stated.

Pressure from food prices is likely to dissipate in H2 2013‚ in the bank’s view‚ allowing for headline inflation to moderate‚ assuming our assumptions that oil prices fall back below $100 and dollar/rand tracks around an 8.00 level prove correct.

“We see headline inflation moderating back to 5.2% by end-2013‚ which will likely occur against the backdrop of improving economic growth. Taken together‚ we believe this will allow the SARB to remain on the sidelines. We therefore expect the repo rate will be left at the level of 4.5% into early 2014.”

The bank said its new inflation forecasts support the notion that the SARB will operate in three distinct Acts. Into late 2012‚ inflation already below 6% will likely moderate back toward 5% amid weakening activity data. 

This combination will reinforce the SARB’s dovish‚ growth-orientated outlook and is likely to lead to a 50bp cut in November. 

Act Two‚ of rising inflation in H1 2013‚ will probably see the SARB on the sidelines‚ notwithstanding potentially soft economic growth. 

In Act Three‚ even through economic growth is likely to pick up in H2 2013‚ moderating inflation implies no need for the SARB to rush to hike rates.

“We therefore see rates on hold at 4.5% throughout 2013 and see the earliest possible hike in Q1 2014.”


Source : Fin24.com
Tags : rate, rate cut, interest rate cut, interest rate south africa, reserve bank, repo rate, repo rate news 

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South Africa interest rate unchanged jan 2012

The Reserve Bank’s monetary policy committee (MPC) has kept rates unchanged, it announced at the end of its three-day meeting in Pretoria on Thursday.


The repo rate remains at 5,5% and the prime interest rate at 9%, said Gill Marcus, governor of the Bank.

SARB

This was the seventh consecutive meeting of the MPC where the repo rate remained unchanged, after it was reduced by 650 basis points between mid-2008 and December 2010. It keeps the rate at its lowest level in more than 30 years.


Economists had not expected the MPC to raise or lower rates, a decision that should not affect the rand.


Barclays Capital also said earlier on Thursday that the MPC announcement was unlikely to have a material impact on the rand in the near term if the decision was unchanged and the accompanying policy statement suggested that the possibility of an imminent shift in the policy stance remained remote.


Ms Marcus also said that South Africa’s growth forecast for this year had been revised down to 2,8% from 3,2%. For next year, the forecast is now 3,8% from 4,2%.


Inflation was steady at 6,1% last month, which confounded forecasts of an increase and eased speculation that the Bank would be forced to raise interest rates late this year.


Market consensus had predicted inflation would rise to 6,3% compared with December 2010, up from 6,1% in November and taking it further above its official 3%-6% target range. In December last year, inflation rose by 0,2%, below a 0,3% increase in November.


In November, the Bank predicted inflation would peak at an average 6,3% in the first quarter of this year before declining gradually and returning to the target range in the final quarter.


Many economists believe inflation will be higher and stay out of its target range for longer, prompting the Bank to raise interest rates later this year.


The rand depreciated by more than 18% against the dollar and the euro last year, which raised the cost of imports, particularly that of petrol.


So far this year the rand has strengthened, and may continue to do so over the coming months if global risk aversion abates.


With MARIAM ISA and I-NET BRIDGE, SAPA


Source : businessday.co.za
Tags : interest rate, new interest rate, Gill marcus, reserve bank

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South Africa interest rates unchanged

Reserve Bank governor Gill Marcus says the repo rate will remain unchanged in spite of a breach in the South African Reserve Bank’s forecast inflation rate. The repo rate remains at 5,5%, said Marcus today.


Addressing the media after a meeting of the Monetary Policy Committee in Pretoria, Marcus said the rate of inflation is slightly higher than forecast and is now expected to peak at 6,3% by the beginning of next year.

Interest rates

"Price shocks could feed through to generalised inflation. The MPC will monitor closely for any secondary effects and will respond timeously should these effects change inflation rapidly," she said. "The Main driver is food price inflation which rose 5,1% year on year in March."


"The MPC continues to be of the view that the underlying inflation pressures are mainly of a cost push nature. These developments are expected to result in a temporary breach of the upper limit of the target band during the first quarter of 2012," said Marcus.


"It is recognised that these pressures have the real potential to generate second round effects which can result in more generalised inflation. In light of the above, the MPC has decided to keep the repurchase rate unchanged at 5,5 per cent per annum, for the time being."


"The MPC will remain vigilant with respect to any inflation risks that could emanate from domestic demand developments."


Source - BusinessDay.co.za
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