Cape Town – Although he is of a very low conviction, there is still hope
of an early 2013 interest rate cut, emerging markets analyst Peter Attard Montalto said on Thursday.
The monetary policy committee (MPC)
of the SA Reserve Bank (Sarb) meets for the first time this year on January 22-24.
The Sarb MPC were the first policy makers anywhere in emerging
markets to pick up publicly the risks from the fiscal cliff, said Nomura's
Montalto in a research note, adding that this helped drive the
July rate cut when combined with other risks from the eurozone and Asia.
The risks from the fiscal cliff have similarly been a small but
important indicator that there could be a rate cut in the first quarter of 2013.
"Timing wise, at least now with the can kicked down the road and the
eurozone taking time out from its own crisis, not to mention importantly China
PMIs (purchasing managers' indices) picking up (another risk the MPC have
focused on - hard landing in Asia), (it) seems out of the question now."
The key hurdle, maintained Montalto, has always been if the growth shock is
sufficiently strong. "That may well come in the upstream and downstream
impacts of the mining labour unrest feeding through to the wider economy and
the data out in the coming months."
Montalto said the much narrower trade deficit is "an interesting
complication to the view".
"We think the MPC will share our view, however, in seeing those numbers as
a one off and hence that current account risks remain high, and by implication
the required growth shock externally and domestically needs to be of a
Montalto pointed out that the inflation level is not mentioned:
"We have said for some time that a January cut was less likely than a
March one, given the arrival of the new inflation index in late February.
"However, the level of inflation won’t be a sufficient deterrent to cut,
in our view, with core under control and any breaches of target likely to be
related both to the new index and to short run and non-core factors.
"Overall, we maintain our view of a rate cut for now, but it is of very