Johannesburg - Reserve Bank governor Tito Mboweni is unlikely to offer a parting gift to indebted South Africans when he delivers his final monetary policy address on Thursday.
A survey conducted among 20 economists for FinMedia24's Economist of the Year competition forecast the prime lending rate at around 10.5 - its current level - during the fourth quarter of 2009.
"We have come to end of the interest rate easing cycle," said Jeff Schultz, macro strategist at Absa Capital.
"There is enough evidence, aside from the poor retail numbers, that the economy is gaining momentum. South Africa is past its worst," Schultz said.
He added this statement is based on trends in economic data, including retail and manufacturing numbers, over periods of three months.
The counter-argument is that retail numbers are still extremely depressed. Retail sales for August 2009 fell 7% from the same month one year ago and compare to a 4% year-on-year decline in July 2009.
Manufacturing output declined 15% in August 2009, compared to the same month last year and a 13.5% contraction in July. However, output actually increased 0.8% in the three months to August compared to the previous three months, which is the sector's first increase in over a year.
"These small improvements in maufacturing and mining don't detract from extremely weak activity levels," said Carmen Altenkirch, economist at Nedbank.
"The Reserve Bank has shown sensitivity to the growth concerns this year," she said. Nedbank's economics unit holds the view that the Reserve Bank will cut rates by 50 basis points this week.
Meanwhile, Eskom's announcement regarding future electricity tariff hikes may be considered as a future risk to inflation by the Reserve Bank.
The power utility announced last week it may require a 45% tariff increase - to be implemented in mid-2010 - to fund its expansion plans.
Retrenchment threat still looms
"This will add about 0.8% to the headlining inflation number and one should consider second-round inflation effects as well," said Schultz.
Mboweni gave little indication in the previous monetary policy statement on what stance the committee will take.
If the central bank does grant consumers a 50 basis-point breather, the cut is unlikely to nudge the average South African towards making long-term credit purchases such as a house or a car, or even a credit card-sponsored shopping spree.
"A cut would help those who are deep in debt. It's not going to spur any spending," said Schultz.
"Consumers are still driven concerns over job losses," said Altenkirch. "South Africans will probably avoid taking on long-term debt until they are more confident about job prospects and the economy," she said.
The number of jobs lost in the first half of 2008 was 253 000. Further retrenchments are expected in the second half of the year, although economists expect the pace of lay-offs to slow down.
The combination of an increase in unemployment and high levels of household debt will translate into subdued spending during the upcoming festive season.
"There can be little doubt that retailers face a bleak peak spending season," said Luke Doig, senior economist at Credit Guarantee Insurance Corporation.
Economists said that the cumulative 5% decline in interest rates since December 2006 has been primarily employed by South Africans to reduce debt. However, as yet little inroads have been made in reducing household debt from the highs of 2008, when it stood at 76.6% of gross domestic product.
- Fin24.com