BLBG: South Africa Set to Keep Rates on Hold: Week Ahead
By Mike Cohen
Jan. 25 (Bloomberg) -- South Africa’s central bank will probably leave its benchmark interest rate unchanged tomorrow as a recovery in Africa’s largest economy gathers pace and inflationary pressures abate.
The bank will keep the rate at 7 percent, according to 20 of 22 economists surveyed by Bloomberg. The decision will be announced soon after 3 p.m. in Pretoria.
The Reserve Bank reduced the key rate by 5 percentage points in the nine months through August after the economy fell into its first recession in 17 years. Growth resumed in the three months through September, with gross domestic product expanding an annualized 0.9 percent as manufacturing recovered.
“The central bank probably feels it has responded enough” to the recession, said Kevin Lings, an economist at Stanlib Asset Management in Johannesburg. “We are already at the bottom of the interest rate cycle.”
Lings said he expects the central bank to keep rates “at this level for as long as possible.”
The economy will expand about 3.7 percent this year, Cape Town-based Old Mutual Investment Group forecast on Jan. 19, saying the government’s estimate of 1.5 percent was overly pessimistic. It said rates would probably stay on hold all this year. GDP contracted about 1.9 percent in 2009, according to the National Treasury.
Inflation Rate
Inflation slowed to within the central bank’s 3 percent to 6 percent target range in October for the first time since February 2007. The rate rose to 6.4 percent in December from 5.8 percent the month before, according to the median estimate of 22 economists. The inflation data will be released on Jan. 27.
The central bank said on Nov. 17 that it expected inflation to move within the target range on a “sustained basis” in the second quarter, and remain there until the end of 2011.
“With rates at 7 percent and inflation for 2010 expected to be around 6 percent, South Africa has a real interest rate of 1 percent,” said Rashaad Tayob, a fund manager at Cape Town- based Aeon Investment Management. “While this seems low by historical standards, it is high in the global context. The South African Reserve Bank will not be under pressure to hike rates until the global economy stabilizes and rates begin to adjust to more normal levels.”
Stronger Rand
The rand’s 28 percent rally against the dollar last year is helping contain price increases. Morgan Stanley, Rand Merchant Bank and Commerzbank AG all expect the rand to strengthen further until mid-year.
Lutz Karpowitz, a currency strategist at Commerzbank, said on Jan. 20 that he expects the rand trading at 7 per dollar by mid-year, compared with 7.6122 at 17:50 a.m. local time today.
“It’s very clear that across a range of products the currency has pushed down goods prices,” said Arthur Kamp, an economist at Sanlam Investment Management in Cape Town. “Even if the currency does weaken a bit, the throughput of last year’s appreciation should still keep inflation in check.”
Upcoming events:
Pretoria Portland Cement annual general meeting Jan. 25
Interest rate decision Jan. 26
Corn import and export data Jan. 26
Harmony Gold Mining Corp. investor presentation Jan. 26
Consumer inflation data Jan. 27
Corn deliveries data Jan. 27
McCloskey Coal Conference Jan. 27-28
Producer inflation data Jan. 28
Aquarius Platinum First Quarter Production Report Jan. 28
Private sector credit, money supply data Jan. 29
Trade data Jan. 29
Hudaco Industries annual earnings Jan. 29
Government budget deficit, tax data Jan. 29
To contact the reporters on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net
