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Absa: Rate cuts will disappoint

Jun 15 2009 15:40

Johannesburg - Despite the forward market appearing to price in a 6.50% end to the rate cut cycle, Absa Capital feels that a 7% "terminal" repo rate should rather be expected.

"Poor April manufacturing data last week provided support for a significant (16 basis point) rally in the forward rate agreement (FRA) curve. We estimate that the (...) FRAs are now once again pricing in a 6.50% end to the rate cut cycle. Data from last week also showed business confidence falling to a fresh 10-year low of 26 in the second quarter this year from the first quarter's 27. We see no reasons in this data for the MPC to deviate from the view stated after the May MPC meeting that there was little room for further 'significant' rate cuts," said the Absa Capital market analysts.

"In our view, the large number of holidays in April exaggerated the manufacturing decline, with PMI data suggesting that May will see some improvement. We therefore believe that the second quarter is unlikely to see a repeat of the first quarter's dire GDP performance," they say.

However, Absa Capital continues to caution against paying FRAs at current levels.

"This week sees the release of April retail sales (Wednesday) and the SARB's Quarterly Bulletin (Thursday), which will contain the expenditure side GDP data for the first quarter this year among other things. Both releases are likely to highlight the week state of consumer demand and could spur further rallies in the FRAs," say the analysts.

The week also saw substantial bond and swap curve rallies with good appetite for bonds seen from domestic investors following the sell-off over the past few weeks, while supply has been temporarily curtailed by the lack of an auction this week - due to the 16 June public holiday.

"Government comments have also been supportive of the rates market with President Zuma twice (Sunday June 7 and Friday June 12) speaking against trade union threats of a general strike and agitation against current economic policy," concluded the analysts.

South Africa's repo rate is currently at 7.5%, with the next decision due on June 25.

- I-Net Bridge

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MacZero
Jun 17 2009 06:41 Report this comment

nathan browne, unfortunately it will not work. Reason "can you ever recollect a T.V.debate that included the ordinary people, consumers etc" You will end up with a bunch of "economists, bank officials & so called financial experts" telling us how well off we are and how the financial industry is struggling to make ends, and why these thieves actually deserve their multi million rand bonuses. They are totally out of tune with this planet never mind their customers. Same for the retailers.

nathan browne
Jun 16 2009 10:43 Report this comment

Is there anyone out there has the influence to organise a strong TV debate about the monopoly our banks have over our entire existence - (In this context money is everything), and they control it. Surely we need to as consumer mobilse and demand an open debate. Having said this I also question the very high margins that retailers place on food stuff. When you look at all the confidential rebates one needs to pay, do not fool yourself when certain stores claim to 1% on Sales profit only.

Eish
Jun 16 2009 00:27 Report this comment

ABSA, only way to stop reducing the REPO rate is to reduce the 3.5% gap between Bank and Repo rate!

HV
Jun 15 2009 19:11 Report this comment

After living and working abroad for well over 12 years already I can assure you that the rest of the world does not pay to use internet banking services or deposit money etc etc. I still maintain accounts in South Africa and the disparities between the banking practices are HUGE. Local banks rip the consumer off - i agree with Andrew in that we allow this to happen to us and in the absence of concerted consumer advocacy they will continue to prosper from it.

ouma moana
Jun 15 2009 18:48 Report this comment

Have u noticed not only food prices are rising, but weight/gram per packaging is getting less! I know I am being ripped off, but what can an ouma do about it?

VAVI WILL WIN
Jun 15 2009 17:54 Report this comment

DONT WORRY GUYS,VAVI IS GONNA GET THE RATES DOWN.BELIEVE WHAT YOU WILL,IF COSATU START STRIKING,ZUMA IS GONNA LISTEN.

JOE PISS OFF SOMAI
Jun 15 2009 17:24 Report this comment

I AGREE WITH BENZO.. THE GOVT IS SLEEPING WITH ESKOM... U GIVE US BACK 1% AND THEN U RISE ELECT BY 34%.... GO BLUFF THE 2010 .. AND I THINK THAT 2010 WE WILL MAKE A LAUGHING STOCK OF OURSELVES.. LOOK AT THE OPENING OF THE CONFED CUP.. PATHETIC, AS FOR BAFANA THEY SHOULD PLAY WITH TENNIS BALLS

andrew
Jun 15 2009 16:54 Report this comment

Banks rip the consumers because we allow them ; try to ogarnise a bank protest and the results will follow these legal thiefs do this because we allow it...


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