Breather for weary consumers

Johannesburg - Consumers can expect an interest-rate cut of at least one percentage point this week, while the anticipated economic data could signal further cuts later in the year.

The Reserve Bank's monetary policy committee (MPC) meeting begins on Monday, and on Tuesday it will announce whether interest rates are being cut. Economists' consensus is that rates will fall by a full percentage point.

The rate at which banks borrow from the Reserve Bank is currently 10.5%.

A reduction had actually been expected for some time, following last month's one percentage point cut when Reserve Bank governor Tito Mboweni indicated that he had in fact favoured a cut of two percentage points.

Last week Mboweni made the surprise announcement that the MPC would be meeting every month, other than July, for the rest of the year.

Efficient Group economist Doret Els says in a research report that the Reserve Bank's action is unusual. She had anticipated that a cut would be made at the next scheduled MPC meeting in April. "As a consequence of the Reserve Bank's unusual step we now expect a one percentage point reduction this week, and another in April."

A probable reason for the Reserve Bank's procrastination after the previous meeting in February is that it wanted to counter any perception that would cause the rand to weaken and inflation to rise.

Good news has since emerged on this front, with the rand making significant gains last week in response to the weaker dollar.

At the time of the MPC's last meeting the currency was trading at R9.60/dollar, but on two occasions this month its weakened to R10.60. It has since recovered and is currently trading at R9.96/dollar. Economists reckon an interest-rate drop has already been discounted, especially with good news on South Africa's current-account deficit being expected this week.

The Reserve Bank's report for the fourth quarter, which contains information about the deficit, will come out on Wednesday. This could, according to the economists, amount to -7.3% of the gross domestic product (GDP), a slight improvement on the -7.9% recorded in the third quarter.

The economists remain uncertain about the effect of the new inflation basket. Although it is accepted that inflation is trending downwards, the Consumer Price Index (CPI) for February could show a slight rise from 8.1% to 8.3%. This would be in reaction to the rise in the petrol price and still stubbornly high food inflation for that month.

These numbers will also be announced on Wednesday.

Producer prices, however, look much better and the economists expect a hefty reduction in the Producer Price Index (PPI) from 9.2% in January to 8% in February. These figures are expected on Thursday.

- Sake24.com

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