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Metropolitan punts another rate cut

Johannesburg - There is still another chance for an interest rate cut of 50 basis points, Metropolitan Asset Management (MetAM) economic analyst Ilke Smit said on Thursday.

The repo rate stands at 5.5%, while the prime lending rate is 9%. MetAM is basing its forecast on several factors.

These include performance in the forward rate agreement (FRA). Smit said the yield on the 3x6 FRA was 0.12 basis points below the Johannesburg Interbank Agreed Rate (Jibar), implying a mere 24% "probability" of a rate cut three months from now.

Another factor is the rand, which has strengthened more since December 2010 and was trading at around R6.60/$, said Smit.

MetAM has forecast that another 150 basis points were left in the interest-rate cutting cycle in addition to the March 2010 cut.

With 100 basis points cut since then, Smit said, another 50 to 100 basis-point cut is to be expected.

MetAM also expects the rand to strengthen further to the key technical level of R6.50/$, then to R6.20/ and then below R6/$.

Portfolio inflows, foreign direct investment inflows and an uptick in exports due to strong commodity prices are some of the factors expected to drive rand strength.

 

 

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