'60% chance of rate cut'
Dec 01 2009 16:10
Evan Pickworth
Johannesburg - There is a 60% chance another rate cut
could be on the cards in South Africa, a leading economist told I-Net Bridge on
Tuesday.
Chief economist from Brait, Colen Garrow, said in an interview that a 50
basis point cut - which would take the repo rate to 6.5% - might happen in the
first quarter of next year, i.e. at either the January or March Monetary Policy
Committee meeting.
"I'm hopeful. It will put a bit of a brake on rand strength and that's one
way of doing it. They should be looking at that quite closely," said the
economist.
Garrow says that while the GDP growth trend is higher, the concern is about
how sustainable the recovery will be.
He says he has pencilled in a more bullish than consensus expectation for
growth of 3.3% next year. Consensus is at around 2.6/2.7%.
"It could go higher, but will not be sustainable if the global recovery
falters," said Garrow.
The economist feels there is a chance that the global economy experiences a
"double-dip recession of sorts", with the next leg less severe a contraction
than the first part.
"This could happen when the G20 starts withdrawing stimulus and South
Africa will follow that weakness," said Garrow.
South Africa's real gross domestic product (GDP) at market prices on a
quarter-on-quarter (q/q) seasonally adjusted annualised (saa) basis rose by
0.9% in the third quarter of 2009 from a revised -7.4% (-6.4%) in the first and
a revised -2.8% (-3.0%) in the second quarter. This snapped the first instance
of three consecutive quarters of negative growth seen since the fourth quarter
of 1992.
South Africa's unemployment rate, however, increased to 24.5% in the
quarter ended September 2009 from 23.6% in the second quarter.
The South African Reserve Bank's (SARB's) Monetary Policy Committee on
November 17 decided to keep the repo rate unchanged at 7.0%.
The increase in South Africa's consumer price index (CPI), which is used by
the SARB for its inflation target, was up 5.9% year-on-year (y/y) in October
from 6.1% y/y in September.
- I-Net Bridge
