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Johannesburg - The regular debate on whether the Reserve Bank will cut interest rates or not is under way this week, with the usual split in opinion.
In May interest rates were left unchanged, after the Monetary Policy Committee's (MPC's) rather surprising half a percentage point cut in the repo rate to a record low of 6.5% in April.
Two weeks ago Razia Khan, an economist at Standard Chartered in London, said the firm had officially adjusted its view and expected a rate cut. She repeated this viewlast week, after May's retail sales figures were announced.
Although retail sales had improved 3.2% year-on-year compared with April's 2.9%, Khan said that data on credit card transactions, trade confidence and employment growth are still poor and certainly not good enough for an economy such as South Africa's.
She said there is still room for further stimulus and a further rate decline to help South Africa's heavily indebted consumers, and the inflation outlook is low enough to support it.
Investec economist Kgotso Radira said figures showing the economic recovery may be losing momentum are reason to expect another interest rate cut. If it does not take place on Thursday, he reckons, it might occur in September.
On the other side of the spectrum, Nomura International analyst Peter Attard Montalto said on Friday that, although markets are pricing in a 40% likelihood of a rate reduction, he expects interest rates to remain unchanged for some time unless a major shock occurred.
Too many economic unknowns
This is despite a slight disappointment in the May manufacturing data and a drop in the purchasing managers' index to under 50 index points in June.
Standard Bank economist Danelee van Dyk said although there are strong arguments favouring a rate reduction, there are still too many economic uncertainties which will incline the Reserve Bank to be conservative.
For instance, there is still no certainty on how the July electricity price increases will affect the consumer price index.
Montalto warned that there has been significant growth in real wages in the second quarter, and that the 2010 FIFA World Cup could lead to inflation.
He reckons the Reserve Bank will in the short term leave interest rates alone, to boost manufacturing and ensure a recovery in the sector.
According to Van Dyk, September may be a better time to consider another rate cut because most of the second-quarter data will then be known.
If the MPC should surprise on Thursday, the danger would be that it would have to raise interest rates that much faster once the economy recovers completely, she said.
On Friday, Moody's Analytics also said it was unlikely that interest rates would come down this week.
- Sake24.com
In May interest rates were left unchanged, after the Monetary Policy Committee's (MPC's) rather surprising half a percentage point cut in the repo rate to a record low of 6.5% in April.
Two weeks ago Razia Khan, an economist at Standard Chartered in London, said the firm had officially adjusted its view and expected a rate cut. She repeated this viewlast week, after May's retail sales figures were announced.
Although retail sales had improved 3.2% year-on-year compared with April's 2.9%, Khan said that data on credit card transactions, trade confidence and employment growth are still poor and certainly not good enough for an economy such as South Africa's.
She said there is still room for further stimulus and a further rate decline to help South Africa's heavily indebted consumers, and the inflation outlook is low enough to support it.
Investec economist Kgotso Radira said figures showing the economic recovery may be losing momentum are reason to expect another interest rate cut. If it does not take place on Thursday, he reckons, it might occur in September.
On the other side of the spectrum, Nomura International analyst Peter Attard Montalto said on Friday that, although markets are pricing in a 40% likelihood of a rate reduction, he expects interest rates to remain unchanged for some time unless a major shock occurred.
Too many economic unknowns
This is despite a slight disappointment in the May manufacturing data and a drop in the purchasing managers' index to under 50 index points in June.
Standard Bank economist Danelee van Dyk said although there are strong arguments favouring a rate reduction, there are still too many economic uncertainties which will incline the Reserve Bank to be conservative.
For instance, there is still no certainty on how the July electricity price increases will affect the consumer price index.
Montalto warned that there has been significant growth in real wages in the second quarter, and that the 2010 FIFA World Cup could lead to inflation.
He reckons the Reserve Bank will in the short term leave interest rates alone, to boost manufacturing and ensure a recovery in the sector.
According to Van Dyk, September may be a better time to consider another rate cut because most of the second-quarter data will then be known.
If the MPC should surprise on Thursday, the danger would be that it would have to raise interest rates that much faster once the economy recovers completely, she said.
On Friday, Moody's Analytics also said it was unlikely that interest rates would come down this week.
- Sake24.com
