Johannesburg - South Africa’s economists are apparently not convinced that interest rates could still fall significantly this year, though they are optimistic about prospects for consumer price inflation, leaving room for another rate cut.
The September consensus forecast by the 35 economists taking part in FinMedia24’s Economist of the Year competition is that the prime lending rate will be 9.45% by year-end, just below the current 9.5% level.
This indicates that for this year at least they do not expect a meaningful decline.
The South Africa Reserve Bank’s monetary policy committee (MPC) will meet for the last time this year on November 17 and 18 to decide on interest rates.
Every month the participating economists produce forecasts on 12 economic variables, which are then assimilated into a consensus forecast by Professor Eon Smit of the University of Stellenbosch.
But the economists are increasingly optimistic about inflation prospects because each month’s consensus forecast on inflation is lower than that of the previous month.
This means that an interest rate cut in early 2011 is possible, should the declining trend persist.
The economists are asked to predict the average inflation rate for the whole year, which is why their latest consensus forecast of 4.72% is higher than the 3.2% real inflation rate announced last week.
What is significant, however, is that the economists’ consensus forecast each month has been lower than that of the previous month. Back in February the consensus was that the year’s average would be 5.86%.
But the economists do not expect next year’s inflation rate to fall indefinitely. Indeed, they expect next year’s average to be 5.45%.
The economists are also sceptical about the view of some commentators that the rand could strengthen to R6.50 against the dollar.
The latest consensus is that the average rand/dollar exchange rate will be R7.21 in the final quarter.
The strengthening of the rand since mid-year caught the economists on the wrong foot, after they had predicted an exchange rate of R7.91 at the beginning of the year.
The same applies to the euro, with the economists having predicted an exchange rate of R11.05 to the euro at the beginning of the year, compared with the latest consensus of R9.60.
- Sake24
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