Johannesburg - A move in currency policy is increasingly likely in the second half of 2010, according to the Nomura Global Economics unit of the financial services group Nomura International on Thursday.
Their comments followed three-day meetings with South African policymakers, local banks, politicians, economists, public sector institutions and political parties.
"One of the strongest conclusions we took from our meetings with policymakers in Pretoria was that a change in currency policy is increasingly likely in the second half," said Peter Attard Montalto, Nomura Global Economics analyst.
It is however not clear if this could be an indication that the pegging of the local currency will actually come to fruition as some have been calling for. Attard Montalto poured water on this.
"The likelihood of government agreeing on an over-valuation figure is small, but we believe it would be highly beneficial if such numbers were brought to cabinet by different participants in order to crystalise the debate into policy," he said.
"However, a shift in currency policy is only a short-term pressure relief valve, it is no substitute for longer-term competitiveness and structural reforms," added Attard Montalto.
The group also met with the South African Reserve Bank (Sarb) governor Gill Marcus and other Monetary Policy Committee members, the Economic Development ministry, National Planning Commission and various departments from the National Treasury.
The unit made several observations and differed with the Sarb's forecast of interest rates remaining low "for some time". The bank has said that only international and local economic developments (including the eurozone crisis and local inflation) could determine whether or not there should be changes to the repurchase rate, currently at 6.5%.
"In our different forecast to the Sarb, we think rates can still be hiked early, though a conservative stance means January 2011 is now more likely than November 2010," said Peter Attard Montalto, Nomura Global Economics analyst.
The unit believed that pressures on government to create employment and deal with health and education issues among others could in future lead to higher taxes.
"Pressure for action on employment, health, education and other structural issues will push the government to higher levels of spending and the Treasury's conservative response will be to hike taxes," said Attard Montalto.
- I-Net Bridge