Johannesburg - South African interest rates look set to fall another 50 basis points next week to help mend a faltering economy, but the cut may be the last in the current cycle.
A half-percentage point reduction will bring total cuts since December to 500 basis points and unwind the rate hikes made between June 2006 and June 2008 aimed at taming inflation.
Africa's biggest economy slumped into its first recession in nearly 20 years with a 25 year record contraction of 6.4% in the first quarter, and data since then point to more bad times ahead.
Manufacturing output plunged a record 21.6% year-on-year in April, one of the clearest signs of the severe impact a global downturn is having on the country.
Exports collapsed more than 20% in the first three months of the year, and consumers continue to suffer, with retail sales falling again in April.
"The MPC (monetary policy committee) is concentrating on growth over inflation and recent surveys actual data continue to disappoint," said Nomura emerging markets analyst Peter Attard Montalto.
Inflation, though, is becoming more of a concern for the central bank.
CPI remains sticky above the central bank's 3% to 6% target range, prompting arguments that the 100 basis point cuts of the past four months may be at an end, which, if true, is bound to anger trade unions who have become increasingly vocal and militant in demanding looser monetary policy.
All but two of 26 economists polled this week expect a 50 basis point repo rate cut to 7.0 percent on June 25, after the Reserve Bank's two-day policy meeting. One of the dissenters sees the reduction delayed to August.
But 17 analysts predict next week's move will be the last for the year.
"The economy needs it. We have declining GDP (and) consumers are still suffering," Nico Kelder, economist at the Industrial Development Corporation, said.
"But I think it will be the last for a couple of years. Inflation is still high and sticky, that needs to come down first."
Unions want more
Headline consumer inflation slowed marginally to 8.4% in April and should ease further in data to be released on Wednesday.
The central bank and most economists had expected it to cool much faster and now fuel costs are rising again and unions are demanding double-digit wage increases.
Electricity utility Eskom is asking for a 34% tariff annual increase.
So while producer inflation has braked sharply, consumer prices remain high and central bank governor Tito Mboweni warned after last month's meeting the policy committee was unlikely to go for more big cuts.
Powerful trade unions, close allies of the ANC, have demanded more action from the Reserve Bank and government to save jobs and propel the economy out of recession.
So far, the central bank has resisted pressure but the protests, and fears the expected economic recovery will take longer than previously thought, open an outside chance of another 100 basis point cut.
Next week's rates decision could be the last under Mboweni, whose contract expires on Aug 7, so he may not want to be seen to be too hawkish by leaving rates unchanged.
President Jacob Zuma is still to announce whether Mboweni will serve a third five-year term.
The decision will be announced from 15:00 on Thursday.
- Reuters